To What Extent Does a Price Quote by a Sub-Trade Affect the Terms of the Subcontract?

Quote Versus Contract

This Article was Published in the Legal Edge October 5, 2016

by Jared Epp, Robertson Stromberg LLP

In the November 2015 issue of The Saskatoon Specifier, I explored the legal implications and issues that arise when a subcontract adopts the terms of a prime contract. We found out that there was no hard and fast rule as to which contract “wins” when the terms of these contracts conflict. However, this is not the only type of “contract conflict” that exists.

Frequently, subcontractors qualify their price quote by excluding certain items from their price. Although the quote is approved by the general contractor, the general then sends the subcontractor its standard subcontract, which ignores these qualifications. A dispute then breaks out between the parties on things like payment and scope of work, with the subcontractor relying on its quote, and the general citing the terms of the subcontract. A recent case in Ontario, Interborough Electric Inc. v. 724352 Ontario Ltd. [Interborough Electric Incorporated v. Maple Reinders Constructors Ltd., 2015 ONSC 5591], provides some guidance as to how this dispute might be resolved by the courts.

The Facts

This Ontario case involved a dispute between a general contractor (Maple Reinders) and an unpaid electrical subcontractor (Interborough). The general, Maple, had been hired by the owner (UPS) to build a large warehouse. Prior to the general contract being awarded, Interborough had provided a quote for the cost of the electrical work to a list of companies who were bidding on the general contract. The quote contained a number of qualifications and exclusions.

After Maple was awarded the prime contract, it invited Interborough to bid on the electrical work. Interborough then completed and submitted a bid in the template provided by Maple. The price in the bid was the same as the price in Interborough’s quote. After receiving the bid, Maple called Interborough to tell them that they had been awarded the subcontract, as the lowest bidder. There was no discussion about Interborough needing to sign Maple’s standard subcontract.

However, a number of weeks later, Maple sent Interborough their standard subcontract document, with instructions to sign. The subcontract contained a number of “general friendly” terms, including terms giving Maple the right to make delay claims, and terms limiting Interborough’s right to compensation (in the event the subcontract was terminated) to compensation paid to Maple by the owner pursuant to the prime contract.

Interborough, after reviewing the subcontract, struck out these provisions, as well as any provision that referred to or incorporated the terms of the prime contract. Interborough, on the front of the subcontract, also wrote that its quote “overrode” all other documents. Interborough then signed the subcontract and sent it back to Maple.

In response, Maple said that it needed time to review the proposed amendments, but that work would proceed, “as it had prior to Interborough proposing the subcontract amendments.” Maple then rejected the proposed amendments. Although Interborough continued with the work, it told Maple that the only document it was bound by was its quote, and the bid that it had submitted. Ultimately, Maple withheld a portion of a payment owing to Interborough. Interborough sued Maple for payment and for delay, and Maple counterclaimed for deficiencies.

The Result

A key issue at trial was what contract governed the parties’ relationship: the quote, the bid, or the subcontract. At trial, Maple argued that the terms of the subcontract that were not specifically objected to by Interborough applied (i.e., every term applied, except for the contractual provisions that Interborough specifically struck out in the subcontract). Interborough, on the other hand, argued that the only documents that it was bound by were its quote and the bid documents, on the basis that the subcontract (as amended) was never signed by both parties.

The Ontario Court ultimately sided with Interborough, the subcontractor. According to the Court, the only terms that were agreed to by the parties were the terms in the quote and the bid documents. Given that the bid documents came after the quote, the bid documents, to the extent that they conflicted with the quote, would prevail. As the bid documents did not require Interborough to enter into a specific contract with Maple, Interborough had no obligation to do so. The Court also held that the fact that Maple would have signed the subcontract without Interborough’s proposed amendments was irrelevant, because no such contract was signed by the parties.

Conclusion

So what lessons can be drawn from this case?

  1. Where a standard subcontract is not signed or agreed to by both parties, a court may revert to the quote and bid documents to determine the parties’ rights and obligations.
  2. Unless the bid documents or the subcontract specifically incorporate the original quote, they will likely override the specific terms or conditions in the quote. If a subcontractor wants to ensure that the qualifications in the quote apply, it must ensure that the quote is included in the subcontract – for example, as a “Contract Document” in a standard Canadian Construction Documents Committee (CCDC) contract.
  3. The fact a bid is awarded does not mean that the subcontractor must sign whatever contract the general wants it to. The more onerous (from the sub’s perspective) the term, the more important it may be, from a legal-enforcement perspective, to ensure that the subcontractor knew what it would need to agree to prior to the bid. In other words, if a general wants to ensure that a subcontractor signs its standard contract, it should ensure that any contentious terms, to which it wants the sub to agree, are included in the bid documents.
  4. A request to add, change or delete a term from a contract (before the contract is first agreed to or signed) is considered by a court to be a negotiation, not an agreement. The fact that not all of the contract terms may have been objected to does not mean that the other terms have been agreed to. Rather, the amendments must be agreed to by both parties, for the other terms to have any effect.

Keeping these lessons in mind will not eliminate disputes over what terms govern in a construction project, but it may help to avoid them.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.