As the economic recovery in the United States continues, one might expect accelerated activity in the construction industry, particularly in the public sector. The Obama administration has stated that a key part of its economic recovery plan is to rebuild and renew various aspects of America’s infrastructure, including transportation, energy, communication, government buildings and facilities, and various other civil projects. The 2009 American Recovery and Reinvestment Act dedicated a total of $105.3 billion to infrastructure investments.
Many participants in the Canadian construction industry have historically engaged in both private and public sector project south of the border. There is no reason to think this involvement will not continue, particularly under this ambitious economic recovery plan. But those that do so should be aware that there are marked differences between Canadian and United States construction laws, especially in the two countries’ private sectors. A Canadian construction company or design consultant considering entering into business south of the border should be aware of these differences to avoid any rude awakenings.
Procurement law in the United States
Regarding the area of procurement, for example, Canadian law has been fairly well established since the 1981 decision of the Supreme Court of Canada, Her Majesty the Queen (Ontario) v. Ron Engineering & Construction (Eastern) Ltd. That decision, and the many cases which have adopted its reasoning, established the principles of fairness and transparency as governing all levels of the procurement process, both in the private and public sectors. So consultants and builders in the Canadian construction industry have the luxury of relative certainty in this area of the law.
In the United States there is also relative certainty in the law of procurement in the public sector. At the federal level, the Fairness and Acquisition Regulation largely governs the procurement process for public projects and adopts many of the same principles espoused by the Supreme Court of Canada in Ron Engineering. A similar result has been achieved at the state level through wide adoption of a model procurement code.
The differences between the codified approach to procurement in the United States and the Canadian common law approach are minor. Overall therefore one can expect to be subjected to the same general law of procurement in public construction projects on both sides of the border.
There is one significant exception, however. In the United States, notwithstanding the recognition of a “firm bid” rule (equivalent to the irrevocable bid rule in Canada), a contractor has the ability to avoid a mistaken bid if it can establish, among other considerations, that the bid was in error and, if accepted, would cause economic hardship.
A comparison of the approaches in the two countries’ private sectors reveals stark and contrasting differences. In Canada Ron Engineering governs both the public and private sectors but the situation in the United States’ private sector is more like the wild west. The law of procurement is simply not recognized. Free enterprise and freedom to negotiate in their rawest forms are customary. The lowest compliant bid is not recognized as being preferred, at least in the eyes of the law.
Economic loss recovery in U.S, construction law
Until the 1974 decision of the Supreme Court of Canada in Rivtow Marine Ltd. v. Washington Ironworks, the law in Canada did not permit the recovery of economic loss if it was a consequence of negligence on the part of a consultant, manufacturer or builder. The duty owed by participants in the design or construction of a product, whether a building or otherwise, for the cost of repairing defects in workmanship, material or design was limited to the participants’ contractual responsibility.
Rivtow Marine extended this responsibility to third parties who had suffered economic loss because of a consultant’s or builder’s failure to warn ultimate users of inherently dangerous defects in the product designed or manufactured by them. The consultant’s and builder’s responsibility was extended further by the Supreme Court of Canada in the 1995 case, Winnipeg Condominium No. 36 v. Bird Construction. In its decision, the Court determined that consultants and builders would be responsible for the cost of remedying inherent defects in design or construction when those defects presented a substantial danger to human health or safety. That remains the law in Canada today.
In the United States, like Canada, it has long been accepted that one can recover for bodily injury or physical damage to property from the tort of negligence. But in the United States there has historically been resistance to allowing tort recovery for the cost of repairing inherent defects in the design or construction of a building. More recently there have been distinct indications of relaxation in this area, particularly in the case of design consultants.
The general law, though, remains that U.S. builders in particular are not exposed to liability for the cost of remedying workmanship or materials defects that have not caused other property damage. In the case of consultants, however, the law in the United States is much the same as in Canada.
Consultants are typically exposed to liability for the cost of remedying inherent design defects, particularly where they present a substantial danger to human health and safety.
As with procurement, there are multiple statutory provisions in many states that deal with and modify the law on recovery for economic loss. Familiarity with these provisions would be critical for members of the Canadian construction industry participating in projects south of the border.
Structuring construction projects in the United States
In broad terms, one can see significant differences between the ways the U.S. private and public sectors structure construction projects. The “design-bid-build” model is popular in the United States for private construction projects but, in the public sector, there has been a long-held preference for “design-build” projects. This has not led, as it has in Canada, to widespread acceptance of public private partnerships (P3’s) but, as economic recovery in the United States gains momentum, there is more recognition that P3’s can play a large role in the rebuilding of American infrastructure. P3 has recently been recognized by the Obama administration as a model that should gain favour as part of the economic recovery plan.
Insurance for U.S. construction projects
Insurance law in the United States has long influenced the development of Canadian insurance law. Canadian participants in American projects should take comfort that the policy coverage they can obtain for construction or builder’s risk, general or wrap-up liability on projects, and professional liability would be much the same as they have received in Canada. There are exceptions in some state jurisdictions but, broadly speaking, the principles and coverages are the same.
A caveat before venturing south
While there are huge opportunities in the United States for the Canadian design and construction industry, there are equally huge risks. Moving into the U.S. construction industry should be done carefully and cautiously. The legal environment south of the border is in some respects quite different from Canada’s and this could result in significant adverse consequences if the appropriate precautionary steps and legal advice are not taken in advance.
Read other articles from the Spring 2011 Letter of the Law:
Homeowner’s Insurance Policies and Environmental Remediation by David Perry
Overbuilt Quarry Avoids Environmental Assessment by David Perry
Waiving Your Claim Goodbye by Stephen Berezowskyj and Carmen Hamilton
Illness and Injury at the Construction Workplace by Barb Cornish and Debra Rusnak
A Lot of Discretion Under the Property Law Act by Mark Thompson and Mitch Dermer
Editor's Note by David Perry
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