Construction partnerships start with pure intentions but too often the best-laid plans of owners, contractors and subs go awry.
Recognizing that some projects go off the rails, on Oct. 2 the Ontario General Contractors Association (OGCA) hosted a dispute resolution webinar to advise its members on avoiding common pitfalls and highlighting best practices to protect their interests.
Three construction lawyers and OGCA president Giovanni Cautillo, host of the webinar, summarized an hour’s discussion in a simple phrase: clarity is king.
“Know your contract,” said Cautillo. “We’re going to be reinforcing here that clarity is king. You’ve got to know what you’re getting into.”
The OGCA recruited Chris Alonso, construction lawyer with Stieber Berlach; Maple Reinders general counsel Chris Moran; and Jordan Fletcher, vice-president, legal — construction with Green Infrastructure Partners, for the webinar. A common refrain was that parties entering into contracts often sow the seeds for disputes right from the beginning, as they are drafting contracts.
Caught in the middle
Moran said frequently problems arise when there’s a dispute resolution process (DRP) set out in the prime contract that’s different from what was negotiated with the subcontractor.
GCs should address the point right from the beginning to make sure the contracts marry up, he said.
“It does create problems,” said Moran.
“You may have to have a separate dispute with your subcontractor, and you would have two separate decisions, one saying you lost to the owner, one saying you’ve lost to the sub. As a general contractor, that’s the worst-case scenario, you’re not going to get paid by the owner, and you’re going to be forced to pay the sub.”
The prime contractor should ensure all parties are operating under the same rules, said Moran. If any provisions are contemplated that raise a red flag, he suggested, the contractor should address those immediately.
“It’s way easier to negotiate while you’re not in a fight. If you can make sure all the parties understand your concerns and why, this is a good thing for everybody, really, at the front end,” said Moran.
Strategically, Alonso said, it’s easier to negotiate a strong DRP at the outset, given that the other parties are interested in getting a deal done. Any later – when the parties are in court, in arbitration or engaged in a resolution process – there has no doubt been a breakdown in communication and thus less goodwill.
“It could be pretty difficult to find your way through sorting out the meaning of provisions at that point,” said Alonso.
It is bad practice, he added, and a contractor is not going to get too much sympathy from the court, if there is a contract with a subcontractor and it blankly states that whatever is in the prime contract applies to the contract, without anything more specific about the DRP.
‘Hold your nose’
With many foreign or out-of-province firms doing work in Ontario, the lawyers noted, there can be multiple jurisdictions to deal with.
Fletcher said some parties negotiate for a home-field advantage, including in DRPs, and if the other party has a bargaining advantage, it can be a matter of the contractor having to “hold your nose.”
Alonso said sometimes there are three different limitation clocks ticking at the same time.
He added, “You can have a fight in Ontario using Dutch law. So again, back to clarity. Clarity is king.”
At times, however, a contractor and a sub will decide to partner together partway through a project when a dispute arises with the owner, and they decide it is in their best interests to create a joint prosecution agreement.
It’s ad hoc, Fletcher explained, and it depends on the circumstances, which may be impossible to predict from the outset of a project.
“You’re just basically saying, we’re going to park our disputes between each other. We’re going to try to fight the owner, and if we’re unsuccessful, then we’ll deal with that other thing later,” he said.
“You would assess whether or not it was appropriate to put it forward a unified front, avoid slinging mud at each other and work together in that mutual interest of a claim against the owner or a defence against the claim from the owner.”
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