Casual Legal: Engineering Consultants in Construction Arbitrations
By Greg Weber
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider
In municipal construction projects, disputes that arise with a contractor need to be resolved. The dispute resolution provisions of the contract typically determine the ways in which they are settled.
More often than not, the final step of the dispute resolution process in construction contracts will be mandatory arbitration. Arbitration is like a court proceeding except it is private, the parties have control over their own procedure, and the parties select a private arbitrator to decide the matter. The process is governed by the Arbitration Act, RSA 2000, c A-43 with a very limited right of appeal; parties should expect the arbitrator’s decision will be final.
One significant additional feature of arbitrations is (unless the parties agree otherwise) that only the signatories to the construction contract can participate in the arbitration. This can create a difficult situation for municipalities when contractor’s claims arise from the engineering consultant’s actions. In normal court litigation, the municipality could issue a third-party claim against the engineering consultant to bring them into the proceeding so any liability accruing to the municipality as a result of the actions of the engineer is passed along to the engineer. This is not possible in the arbitration proceeding and separate legal proceedings would need to be initiated against the engineer in an effort to pass along the liability.
This vulnerability is often increased by the terms of engagement the engineering firm has been retained under as well as the terms of the contract itself. With respect to the terms of engagement, it is very common for the engineer to insist on limitations of liability which limit any damages for negligence to the reimbursement of their fees. This is often wholly inadequate to make the municipality whole. Further, engineering consultants are typically responsible for drafting the very contract documents that exclude the engineering consultants from arbitration. This is frequently complimented by additional clauses in the construction contract that prevent the contractor from pursuing the engineer directly in litigation.
When planning construction projects, it is important to be aware of these unique risks and to scrutinize the terms of engagement with the engineering consultant, the provisions of the contract the engineers have prepared, and the dispute resolution process. A proper legal review is important so municipalities are fully aware of their risks and have the opportunity to competently negotiate with their engineering consultants when retaining them.
To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or send an casuallegal [at] abmunis.ca (email) to reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please call 310-MUNI (6864) or send an riskcontrol [at] abmunis.ca (email) to speak to Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.
DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.
