The payor must necessarily from the nature of the extra work be aware that the alteration will increase the expense. It must be obvious that the work (1) is not included in the contract and (2) will cost more.

Subcontractor who doesn’t notify contractor of change in plans is not entitled to an extra

by Michael MacKay

1351150 Ontario Inc. v. Construction Vergo Inc.

Construction contract • Payment terms • Principles governing payment of extras • Unsigned contract document • Terms of contract

The circumstances of this case are all too common; however, Justice Lalonde’s decision provides a useful summary of the principles that determine entitlement to payment for extras.

The subcontractor, 1351150 Ontario Inc. c.o.b. as Arnco Construction and Excavation, brought a construction lien action against the general contractor, Construction Vergo Inc. a.k.a. Construction Verguo Inc., for unpaid extras. Vergo counterclaimed for the cost to complete Arnco’s work.

Arnco’s subcontract was to provide a sanitary sewage system, water connections, drainage and completion of the parking area, together with curbing and sidewalks, for $285,000 + GST, for a store that Vergo had contracted to build.

At trial, Justice Lalonde had to decide these issues:

• What form did the subcontract take?
• Which extras claimed by Arnco were valid?
• Is Vergo entitled to set-off its costs to have work done by third parties?
• Was Arnco’s construction lien registered in time?

The Terms of the Subcontract

The parties never executed a formal subcontract, but their failure was not significant. Vergo had issued a purchase order to Arnco, which advised that it would be replaced by a formal “contract at the beginning of next week.” Arnco refused to execute the subcontract because it did not agree with two minor terms.

Justice Lalonde noted that the parties did not disagree over the material terms of the subcontract: price, scope of work, or schedule.

Courts will generally presume that a party who does not accept the terms of a written document will object in writing. Failure to do so often means that the written document governs. Here the unexecuted subcontract could not govern because Arnco had objected to two terms. Justice Lalonde concluded that “the purchase order forms the contract.”

Arnco’s Claim

Arnco claimed $112,942, consisting of $36,857 as the unpaid balance of the contract price and $76,085 claimed as extras.

The Law of Extras

Justice Lalonde cited the rules that determined whether work is an extra that were enumerated in Chittick v. Taylor:

Rule 1. An item specifically provided for in the contract is not an ‘extra’.

Rule 2. When the plaintiff supplied material of a better quality than the minimum quality necessary for the fulfilment (sic) of the contract, without any instructions, express or implied, from the defendant to do so, he is not entitled to charge the extra costs as an ‘extra’.

Rule 3. When the plaintiff did work or supplied materials not called for by the contract (plans or specifications) without instructions, express or implied, from the defendant, or the consent of the defendant, he is not entitled to charge this additional work or materials as an ‘extra’.

Rule 4. When the plaintiff did work or supplied materials not called for by the contract on the instructions, express or implied of the defendant, he is entitled to charge for additional work or materials as an ‘extra’.

Therefore, to successfully claim an extra, Arnco had to prove that:

• the work was not called for by the contract; and
• it obtained Vergo’s express or implied approval to do the work

Justice Lalonde applied the test for implied approval in Antler Construction Ltd. v. Kovachich: the payor “must necessarily from the nature of the extra work be aware that the alteration will increase the expense.” [Emphasis added.] In other words, it must be obvious that the work (1) is not included in the contract and (2) will cost more.

Applying these rules and principles, Justice Lalonde only allowed as extras those items that Vergo approved in writing or acknowledged that it had approved verbally. These included:

• replacing wet sand with granular 0.4'' stone;
• recompacting a gas line that Enbridge had failed to compact properly;
• providing additional watermain; and
• additional excavation, curb installation, digging and grading that had not been included due to miscalculations on the plans.

Justice Lalonde awarded Arnco $34,124 for the extras, about half of Arnco’s claim.

He disallowed the balance of Arnco’s claimed extras, either:

• because they were for work that was “part of the scope of work to be done by Arnco and defined on the plans Vergo gave to Arnco at the outset;” or
• because Arnco did not give Vergo notice, and thus the option to obtain competitive prices to do the work before going ahead with the work.

Vergo’s Counterclaim

Vergo claimed a set-off of $60,742, mostly for other contractors it hired due to delays in Arnco’s performance. While Arnco denied that it was responsible for any delays, Justice Lalonde determined that Arnco was responsible for delays in its performance:

…the delays that occurred in the construction schedule were the result of Arnco’s neglect and… the lack of good weather during the month of May 2003 played only a small part in the delays suffered by Arnco. Arnco’s involvement in too many other projects… was the main reason why Arnco was prevented from catching up on the project schedule from time to time.

Vergo had no choice but to hire another contractor to do Arnco’s work to meet deadlines. Arnco’s work was on the critical path. For instance, the concrete slab had to cure for one month before installation of tiles on the store’s floor. Therefore, the slab had to be poured in the first week of July 2003. Arnco had to excavate and then lay pipe below the slab before it was poured.

Justice Lalonde determined that Vergo was entitled to a set-off of roughly $51,871.

He disallowed Vergo’s claim for own forces’ labour and additional engineering fees, because: (1) Vergo did not quantify its own forces’ labour; (2) there was no evidence that the engineer had to stay on site solely because of Arnco’s delays, i.e., that there was no other reason; and (3) Vergo did not warn Arnco that it planned to use its own forces to do Arnco’s work.

The Result

Justice Lalonde’s decision does not sum up the individual claims. It appears that the net result is judgment for Arnco against Vergo for roughly $19,110. Arnco did not have a valid lien, however, because it was late registering its claim for lien.

Ontario Superior Court of Justice
   Lalonde J.
   August 29, 2005