General Contractor Cannot Drop Pre-Qualified Subcontractor for Unreasonable Objections
Schaible Electric Ltd. v. Melloul-Blamey Construction Inc.

On July 29, 2005, the Ontario Court of Appeal upheld a lower court decision awarding damages to a subcontractor after it was dropped by a general contractor that had carried the subcontractor’s bid.

General contractors submitting tenders for a school project were required to carry electrical and mechanical bids from companies that had been pre-qualified by the school board. The plaintiff, one of the pre-qualified electrical subcontractors, submitted the lowest bid for the electrical work for the project. The defendant carried the plaintiff's bid in its tender, but later developed serious concerns about the defendant’s ability to complete the electrical work competently and expeditiously. The defendant had been told by the project’s architect and the owner’s site representative that they were concerned about the plaintiff’s ability to do the work in a timely manner. The defendant contacted various electrical suppliers and all came back with negative responses concerning the plaintiff. Consequently, the defendant demanded 100% performance and labour and materials bonds, which the plaintiff was unable to obtain. The defendant then awarded the contract to the second lowest bidder.

The court held that the defendant did not have a reasonable objection to contracting with the plaintiff. Although the defendant had obtained some negative information about the plaintiff, the plaintiff had been pre-qualified and had successfully completed other projects for the owner.

The court also held that the defendant was not entitled to demand performance and labour and material bonds from the plaintiff in the full amount of the subcontract price in the circumstances.