On any given construction project, the owner is a deciding force of how that project gets built and at what cost. An owner is often responsible for selecting a delivery model that best suits their appetite for risk as well as their intention to be directly involved in the contracting and coordination of trades. The choice of project delivery model lays the foundation for the contractual relationships among project stakeholders.
In light of some of the pitfalls associated with traditional project delivery models, integrated project delivery, or integrated lean project delivery (“IPD”) is a unique project delivery model, in that it places a greater emphasis on cooperation and risk sharing than traditional project delivery models, such as Design-Build and CM-at risk to name a few. The ultimate goal of IPD is to build projects cheaper, faster and with less disputes. However, as Graham Design Builders LP v. Black & McDonald Ltd., 2019 SKQB 161 demonstrates, implementing IPD is not a panacea, and without parties’ complete commitment to fostering a teamwork-oriented atmosphere onsite, there is a strong chance that projects are delayed, budgets are exceeded and disputes arise.
Overview of Dispute and the Facts
Graham is one of Canada’s only publicly available cases centred around a construction dispute arising out of an IPD project. The dispute in Graham arose out of the construction of the Dr. F.H. Wigmore Regional Hospital in Moose Jaw, Saskatchewan. Graham Design Builders LP (“Graham”) was the construction manager and general contractor on the project and Black & McDonald Ltd. (“BML”) was a subcontractor. The parties entered into IPD contracts with the intention of facilitating an open and collaborative approach to construction. However, despite the use of IPD, the project surpassed its schedule and exceeded its budget. BML claimed that it incurred extra expenses and Graham refused to pay BML for its extra costs. The parties arbitrated in accordance with their contracts’ arbitration agreement and BML sought payment from Graham for its cost to complete its work plus profit and interest. The arbitrator awarded BML $11,996,964.84 for its cost to complete the work, $1,439,872.29 for profit, and interest on both amounts.
Graham sought leave to appeal two parts of the arbitrator’s decision: 1) the dates the arbitrator granted interest from and 2) the profit award.
The Test for Leave to Appeal
Graham applied to the courts under section 45 of Saskatchewan’s The Arbitration Act, 1992 (the “Act”), for leave to appeal two parts of the arbitrator’s award. The contracts between Graham and BML did not provide an automatic right of appeal and therefore the court referred to subsection 45(2) of the Act which provides recourse for parties to appeal in situations where arbitration agreements are silent on appeal rights. Citing the decision in Graham Building Services AJV v. Saskatoon (City), 2017 SKQB 336 (Sask. Q.B.) at paragraph 7, the court clarified that when granting leave to appeal under section 45(2) of the Act, the court must be satisfied that:
- the question is a question of law;
- the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
- determination of the question of law at issue will significantly affect the rights of the parties.
For clarification, legal questions are concerned with what the correct legal test is, factual questions are questions “about what actually took place between the parties” and mixed questions are questions about “whether the facts satisfy the legal tests”, and otherwise involve an application of a legal standard or test to a set of facts.
Did the Grounds for Appeal Amount to Questions of Law?
In denying Graham leave to appeal, the court was satisfied that the arbitrator’s interpretation of the contracts amounted to a question of mixed fact and law, and not a question of law alone.
In granting the award, the arbitrator placed great emphasis on the deterioration of the co-operative and team-oriented approach that the IPD contracts were intended to facilitate. Graham and BML’s relationship devolved to the point where Graham’s conduct was not grounded in the processes specified in the contract. The court noted that in light of the fact that the contractual provisions were often not followed nor completely understood by Graham and BML, the arbitrator could not rely on a strict interpretation of the contracts given that the parties largely departed from their terms. To give effect to the intention of the parties and their understanding of the contract, the arbitrator was forced to consider the “factual matrix”, or the parties’ conduct throughout the project. The court ruled that the arbitrator’s reliance on the “factual matrix” properly shifted the question on appeal into the mixed fact and law territory rendering it outside the scope of a properly appealable question under section 45(2).
Graham argued that the arbitrator placed too great a reliance on the “factual matrix”, and that the arbitrator’s analysis “went too far” and “overwhelmed” the words of the contract. However, the court disagreed.
Importance and Significant Effect
Section 45(2) of the Act requires that leave to appeal be granted only where the applicant establishes that the question of law is a matter of importance to the parties and is one that significantly affects the rights of the parties. In turning to the second and third branches of the test, the court ruled that the interest and profit questions were neither important nor significant. The amount of profit awarded was marginally higher than $1 million and the amount of interest awarded ranged between $30,000 to $40,000. These amounts were insignificant in the context of a $16 million arbitral award, a $41 million subcontract and a $110 million project.
Graham also argued that, aside from monetary value, the appeal is important and significant in that this case might be the first in Canada to address IPD contracts and that construction industry stakeholders will refer to this case to learn how these contracts are interpreted by Canadian courts. Although this argument had merit, the interpretation of the IPD contracts in this case required and depended upon a consideration of the unique set of circumstances in which the parties neglected to follow the contracts’ terms. The interpretation of the IPD contracts here were case-specific and offered little to no precedential value for the public. More importantly, section 45(2) of the Act’s requirements of importance and significance only pertain to what is important or significant to the parties and not to strangers to the contracts.
Graham is one of the first cases in Canada to consider IPD contracts. The uniqueness of these contracts in Canada’s construction landscape was evident in the court’s decision and cited portions of the arbitrator’s decision. Even with the arbitrator’s 40-plus years of construction bona fides, coupled with lengthy submissions by experienced counsel, the arbitrator was unable to comprehend the IPD contracts in great detail. This made it difficult to interpret the contracts in any strict manner and necessitated a consideration of the facts and circumstances, or “factual matrix”, to give effect to the contracts’ provisions.
Graham is not an indictment of the IPD model. Rather, Graham is a lesson that a successful IPD project requires a shift in party values and a sincere commitment to cooperation. Without this commitment, parties will resort to their traditional style of dealing, regardless of whether the parties enter into IPD contracts or not.