In this story, the lowest bidder is awarded the construction contract, but then fired when their relationship with the architect sours. The firing, which is on extremely questionable grounds, results in unanticipated complications when the provider of the performance bond refuses to honour it. Meanwhile, as this business drama plays out, defenceless retirees are left shivering in the cold. This story is called “The Boavistan Home.”
The Boavistan population in Canada is relatively small, consisting of maybe 10,000 souls, widely dispersed in small communities across the country. Members of the older generation speak little English, and the Boavistan dialect is understood by few non-Boavistans. As a result, the elderly population was becoming increasingly isolated, lonely . . . and impoverished.
The Boavista Golden Age Trust was created by two philanthropic expats, the honorary consul, Mrs. B. Faro and business entrepreneur Mr. A. Lagos - both successful business people, as well as acknowledged community leaders - with the aim of providing a suitable environment for their aging compatriots. To this end, they purchased a large mansion and converted it to a retirement home, which served the community well . . . for thirty years or so. But the number of hardy senior Boavistans had grown, and the facility was now bursting at the seams.
The Trust commissioned the architects Sullivan & Krafft to design an extension to the existing facility, as a bedroom wing, and to alter the main house as living, dining and recreation areas. Mrs. Faro and Mr. Lagos acted as de facto Clients for the project, to whom the architects would report.
Once the design had been approved, the project was put out to tender. The lowest - and winning - bid was submitted by Alistair Gordon McPride, a local general contractor. The amount, including both the new wing and alterations to the existing mansion, was just under 3 million dollars.
As the construction work proceeded, McPride showed himself to be surly and frequently uncooperative. The Clients, growing disenchanted with McPride and his work, were looking for an excuse to fire him. Finally, an unexplained delay, close to the completion of the project, provided the justification they needed. The Contractor was summarily dismissed and a new Contractor, Leo Slanger Ltd., was hired to finish the job. Slanger, who had originally been the highest bidder, added an extra 400,000 to McPride’s original price.
McPride was furious and promptly sued.
In his Statement of Claim, McPride stated that he had been improperly dismissed. The so-called delay, which had provided the justification for his dismissal, and for which he was claiming additional payment, was the fault of the architects, whose drawings were full of errors and whose administration of the job had been chaotic and arbitrary. Furthermore, the previously unblemished record of the McPride family business had been severely damaged, and this was also compensable.
The Claim included damages relating to payment of holdback owing, delay costs, punitive damages, reputational harm, etc. All in, it amounted to more than a million dollars.
In their defence, the Trust pointed out that McPride had shown no concern for the physical wellbeing of the occupants during the disruptive renovations. Residents in their 80s and 90s - two of them, in fact, over 100 years old - had lived through a winter of extreme discontent. For several weeks in February, one wall of their dining room had been replaced by a plastic tarp, which had blown out during a storm of utmost severity. Residents were forced to wear overcoats, boots and winter hats to dinner. As Mrs. Faro loudly grumbled, “Boavistan food is spicy when hot, but tasteless when it is stone cold.”
The entire objective, they said, had been to provide a safe and comfortable environment for their residents. But instead, they had a living nightmare to deal with. Furthermore, the Contractor had failed to perform to a schedule that enabled the managers of the home to provide a consistent level of care, and McPride had never offered a satisfactory explanation for the construction delay.
It was in view of these perceived failures that the Trust had decided that something needed to be done. But it was the architects, they stated, who were responsible for the turmoil that followed. On their architects’ advice that the Contractor’s workmanship was unacceptable, and that his failure to provide a proper schedule constituted a breach of contract, they terminated McPride’s contract. It was the architect Herman Krafft who wrote the termination letter for them.
On the architects’ further advice, they had hired Leo Slanger, and had written to the Bonding Co., requesting the extra 400,000 dollars that Slanger wanted to complete the job.
Trotting out the most time-worn complaint of them all, Mrs. Faro and Mr. Lagos claimed that the whole unfortunate situation existed because they had “put themselves entirely in the hands of their architect,” and had been badly rewarded.
The Trust had decided to cross-claim against both the architects and the bonding company, taking the view that, in the event that the court agreed with McPride’s wrongful termination allegation, they would simply say that they were only following their architects’ advice. In addition to the unpaid amount of $400,000 from the bonding company, they also claimed the retained holdback amount from McPride, as well as the return of a portion of the architects’ fees. Their total claim amounted to around $800,000.
The action was rapidly descending into an expensive exercise in futile finger-pointing. The architects asserted that the Contractor had been impossible to deal with from the outset. McPride had, for example, promoted minor errors on the architects’ contract documents into major claims for delay and extra costs. The architects had always been accommodating, where appropriate. But McPride had taken every suggestion as a personal insult; he used impolite, even graphic language not usually associated with professional services, while constantly berating Krafft in the Client’s presence.
Every reasonable request for daily detailed schedules had met with no response from McPride, despite the contract requirement to do so. And the many warnings that he shape up had been ignored. It shouldn’t have been surprising to anyone that finally, out of desperation, the architects had suggested that McPride and his crew be fired and replaced by a more agreeable and dependable workforce.
For their part, the bonding company presented a simple defence of their position. The Terms and Conditions of the bond had been so thoroughly ignored that they had no exposure at all.
They had been given no notice by the Obligee (i.e., the Owner) prior to the termination of their Principal (i.e., the Contractor), as was required by the bond. As a direct result, they had been denied the opportunity to complete the work as they might determine. They further stated that there had been no breach of contract by the general contractor severe enough to justify his termination and trigger the bond. As far as they were concerned, McPride had, at all times, indicated his willingness to finish the job and was capable of doing so, both financially and physically.
The bonding company appeared to be on safe ground.
In the discoveries that followed, very little light was thrown on the matter, although considerable heat was generated. Both the architects and the general contractor saw the dispute in very personal terms. The Contractor felt that he had been insulted, and his family’s name had been sullied. He had been ridiculed in the eyes of his peers, and future business had been placed in jeopardy. The architect Herman Krafft, a normally subdued and respectful professional, had been deeply hurt by constant accusations of arbitrariness and unprofessional behaviour in front of his client during site visits.
As could be expected, the clients, Mrs. Faro and Mr. Lagos, acquitted themselves very smoothly, deflecting all blame towards the architects and the Contractor, seeing themselves in such a saintly light that they were—in their own eyes, at least—entirely guiltless.
But, how would a judge or jury view the participants in this action? A self-congratulatory pair of philanthropists, versus a soft-spoken architect, a rough-and-tumble Builder and a glib financier.
None of the parties fancied their chances in court, with the possible exception of McPride, who had foolishly convinced himself that his day in court would “vindicate” him. After some delay, all parties agreed to a mediation.
The mediation was conducted by Justice Wyatt Exton, a very senior retired judge. All parties attended with their lawyers and insurers.
Justice Exton had read the mediation briefs prepared by legal counsel for each of the litigants, and was well versed in the matters likely to be raised - including the very personal nature of the positions to be taken. After the usual preamble, which he hoped would put the participants at ease, he asked each party around the long boardroom table to state their argument. In his words: “Please state your case in a nutshell, and try not to be contentious.”
Counsel for the Plaintiff McPride started things off.
From his client’s point of view, the termination was completely unreasonable. The charge that he had failed to produce a schedule was untrue. He had, in fact, produced a general schedule that met the contract requirements, and any expectation of a day-by-day schedule was unreasonable. In a complex renovation job, you can never know exactly how much you can accomplish on a given day. And following the architects’ drawings, was a losing battle. Not only were the drawings, in his view, inadequate, but the architect Krafft was also impossible to please. . . and so on.
As to McPride’s incompetence, his counsel produced a dozen testimonials from architects who had worked with him, including senior members of the profession in the City and surrounding areas. All spoke highly of him.
Throughout this impressive presentation, McPride sat glowering, showing his obvious distaste for the architect.
Next on the bill, Pro-Demnity counsel admitted to certain minor errors in the documents, but pointed out that they had all occurred at the outset and would have been discovered before construction began . . . if the Contractor had observed the contract instructions to check the drawings thoroughly and verify all dimensions, etc., before initiating the work.
The architects had felt fully justified in suggesting McPride’s termination, because their relationship with the Contractor had deteriorated to the point that their professional participation was impossible. Krafft had even offered to resign as an alternative to firing McPride, but the Trust had begged him to see the matter through. Regarding notification of the bonding company, Krafft recalled assigning this task to the board’s legal counsel.
The bonding company directed our attention to the wording of the bond. It was not difficult to see that terms had been breached in the basic conditions. The bonding company was not liable for anything.
Next up, the lawyer for the Golden Age Trust allowed his de facto Clients Mr. Lagos and Mrs. Faro to speak first.
Mrs. Faro, whose family coconut oil business and fleet of chartered tankers had brought wealth and prosperity to her homeland, portrayed the retirement home enterprise as a charitable undertaking. Having observed the suffering and loneliness of less enterprising compatriots in their old age, she had joined forces with Mr. Lagos, a highly successful optician with outlets from coast to coast, to do something about it. Together they had founded the Boavistan Golden Age Trust and funded its start-up.
The two philanthropists had been referred to the architects Sullivan & Krafft through mutual business acquaintances. The firm had designed a few retirement homes in the area and enjoyed a sterling reputation. Mrs. Faro and Mr. Lagos trusted them implicitly, to the extent that they had sunk $400,000 of their own money into the home. Now, they wanted that money back . . . plus the $230,000 unreleased holdback, to compensate for the aggravation they—and the hapless seniors—had suffered.
Dictionaries define mediation as “An action between parties, as to effect an agreement or reconciliation.”
At this point, the mediator Justice Exton saw that the best way to achieve “agreement, compromise and reconciliation”- in other words, a settlement - was to dispatch each of the parties to separate rooms and speak with them individually, in an attempt to extract some old-fashioned reasonableness.
He dispensed with the defence posture of the architects and Pro-Demnity in short order. The bellicose relationship between Krafft and McPride may have been unacceptable to the architect - professionally and personally - but it didn’t constitute a breach of contract. Neither did their failure to produce a daily schedule. The contract merely called for “a schedule,” and the judge believed the plaintiff that a daily schedule would have been impossible to produce.
The bonding company, meanwhile, was off the hook, except for a possible “nuisance contribution.”
As for Mrs. Faro and Mr. Lagos, Judge Exton persuaded them that the $400,000 was water under the bridge, and that they had received value for money. If, on top of that, they retained the holdback, they would be in a win–win situation.
Speaking at length with the Contractor, Justice Exton realized that McPride was hurt and angry, and understandably aggrieved, also that the preponderance of evidence was in his favour. This claim was not going to simply “go away.” He was in line for a substantial settlement.
Finally, and inevitably, the suggestion was made to the architects that, were the matter to proceed to trial, they could very well be in the line of fire for the Trust’s total loss, in which case, their contribution might be substantial.
Opposing legal counsel hunkered down. Pro-Demnity was unwilling to pay more than half of what the Contractor claimed as his minimum. McPride was adamant, but his opinion of lawyers by this time had sunk to the same level as his opinion of architects, so he also wanted to avoid a court battle. After an intense four hours of wrangling, we settled just below our estimated figure.
For Pro-Demnity and the architects, this was a painful but positive outcome.
On the surface of it, both the architects and the Contractor appear to have acted badly. The Contractor had fostered a hostile relationship with the architects, and his actions were counterproductive, although he had not committed any irreparable errors.
The architects had not really committed any errors either, in a contractual sense. But there was no hope of defending the poor advice that they had offered to their Clients. They had taken a direct role in convincing the Trust to fire McPride and to hire Slanger. Then, they had such a poor grasp of the nature of performance bonds that they imagined that all they had to do was claim a breach of contract, and the Surety would pay up, with no argument. Unfortunately, this is not how bonds - or bonding companies - work.
With growing apprehension, we had watched this claim evolve, without any real hope of getting the architects out from under it. In the end, however, we arrived at a settlement within insurance limits, and avoided personal calamity for the architects, who nevertheless had a large deductible amount to pay, which they could not easily afford. Nonetheless, valuable lessons were learned.
Lesson No. 1: There are a few often-neglected areas of practice in which architects should familiarize themselves. Bonds are near the top of the list.
Lesson No. 2: There are also areas of practice in which architects are not required to offer advice - and should avoid doing so. Bonds are near the top of that list as well. Any advice to their Clients on the matter should come from the Client’s lawyer. In this case, the architects’ misunderstanding of how performance bonds work - and the poor advice they offered as a result - led to a painful and expensive claim.
Lesson No. 3: This case is a reminder of the importance of maintaining positive and constructive working relationships on a project, and keeping things professional. This includes documents, personal interactions and instructions. You can’t always pick who you’ll work with.
