GC 2.4 – DEFECTIVE WORK of the CCDC 2 Contract states clearly that the Contractor must correct defective work that has been rejected by the Consultant as failing to conform with the Contract Documents.

However GC 2.4.3 permits a Consultant to waive this requirement for correction based on “expediency”. Whether it would be ‘expedient’ is for the Consultant to determine.

There are circumstances where completion or correction of a deficiency is not critical to the quality, functionality or aesthetics of a project, but the time required to undertake the completion will or may adversely impact the Project, usually by delaying occupancy or commercial operation. The Owner has a vested interest in moving the Work and the Project forward and has no real loss if the deficiency is not corrected.

GC 2.4.3 sets the credit available to the Owner in the event of waiver of the requirement for correction as the “difference in value between the work as performed and that called for in the Contract Documents.” This credit is unrelated to the cost to complete the work. It is based on “difference in value”. In most instances where GC 2.4.3 is applied, that difference in value will be nominal, if any.

Recently, attempts have been made by persons drafting supplementary conditions to the CCDC Contract on behalf of Owners, to significantly and disproportionately increase the credit to be taken by the Owner under this section. These efforts seem to misunderstand the purpose and intent of this section, and in fact, entirely negate the utility of the section to the Project and the Owner.

The drafters try to set the credit to be taken at a value that penalizes the Contractor. This ensures that the Contractor will never accept a direction from the Consultant to by-pass the remediation and continue with the Work, and the Owner and the Project will not get the benefit that the section, as drafted, is intended to provide or permit.

When considering damages for breach of contract, there are various approaches available to the Court. The cost of reinstatement of a deficiency is one measure of damage, but not the only measure. In some instances, the Courts have held that the proper measure of damages in diminution of value. The legal theory is that an owner should not be permitted to direct or be paid for the replacement of work in situations where the cost of correction is economically wasteful and the work is otherwise adequate for its intended purpose. In such cases, it is argued that the correct measure of damages is the loss in value of the property caused by the defective work.

The authors of the CCDC Contract clearly considered the legal consequences of failure to correct a deficiency and drafted the contract to adopt the diminution in value approach. The section is not intended to be punitive. An Owner is entitled to compel strict performance; a Contractor and its Subcontractors are entitled to the opportunity to correct or complete and have the obligation to correct or complete. The Consultant will only decide to waive completion of a deficiency in circumstances where the failure to correct or complete makes little or no difference to the end product and there is a resulting benefit to the Project and Owner. The co-operation and agreement of the Contractor and its Subcontractor’s is easily obtained when the resulting credit to be deducted by the Owner is less than their costs to correct the defective work. The Contractor and its Subcontractors have already expended labour and materials to perform the Work, albeit incorrectly. The opportunity not to have further additional costs is attractive.

The waiver of the obligation to correct or complete is not one commonly used. Consultants ordinarily want to see deficiencies completed. When the waiver is employed, it is usually for the benefit of the Owner and the Project and the Contractor and the Owner have agreed in advance on the contractual credit to be taken by the Owner.

As drafted by the authors, GC 2.4.3 of the CCDC 2 standard form document works well in practice, as it was intended. It is not a section that requires amendment through supplementary conditions.

¹¹ Some case authority on economic waste, diminution of value and damages. This is not a complete or accurate list and has not been noted up recently 514953 B.C. Ltd. v. Leung,2007, BCCA 114 ; BC Rail Ltd. v. Canadian Pacific Consulting Services Ltd., 1988 CanLII 2987, 23 B.C.L.R. (2d) 357 (S.C.) at para. 65; appeal allowed in part, but not on this issue, 1990 CanLII 723, 47 B.C.L.R. (2d) 49 (C.A.); B.E.H. Construction (1984) Corp. v. Matzhold, [1989] B.C.J. No. 273 (B.C. Co.Ct.) at 10; First City Development Corp. v. Bekei, 1986 CanLII 1070, 3 B.C.L.R. (2d) 175 (S.C.) at para. 158; Strachan v. Barton (1993), 10 C.L.R. (2d) 142 at 175, [1993] B.C.J. No. 1135 (QL) (S.C.), Radford v. de Froberville, [1978] 1 All E.R. 33, [1977] 1 W.L.R. 1262, Ruxley Electronics and Construction Ltd. v. Forsyth, [1996] A.C. 344, [1995] H.C.L. No. 26 (QL), Jacob & Youngs v. Kent (1921) 129 N.E. 889, 891-892. Strata Corp. NW 1714 v. Winkler (1987), 20 B.C.L.R. (2d) 16, 45 D.L.R. (4th) 741 (C.A.); McGarry v. Richards, Ackroyd & Gall Ltd., [1954] 2 D.L.R. 367 (S.C.), Alex Gair & Sons Ltd. v. Lepinski (1998), 36 C.L.R. (2d) 250, [1998] B.C.J. No. 494); 514953 B.C. Ltd. dba Gold Key Construction and Chiu v. Leung, 2007 BCCA 114