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The case of (TTC) was long and complicated, extending more than 160 days including more than 150 days of evidence presentation.

When finally issued, the Ontario Superior Court ruling exposed what Sahil Shoor, partner at Gowling WLG, and associate Nailah Ramsoomair as the “significant legal principles encountered in complex construction and infrastructure projects.”

The implications could resonate for many years.

As outlined in this column in August, the dispute between Walsh and the TTC surrounded the construction of a station along the Toronto-York Spadina Subway Extension.

As Shoor and Ramsoomair , “The project was a ‘design-bid-build’ project which included three phases: the design, the bidding and then the construction. The advantage of this type of project is that it allowed TTC to determine the design. The downside of TTC determining the design for the project was that it equally owned the risks associated with its design and the risk of the project being delayed due to design issues.”

The project suffered significant delays and resultant additional costs, both for Walsh as general contractor and for its subcontractors.

Although the independence of Walsh’s expert witness on these points was strenuously questioned by the TTC, ultimately, “the Court therefore found that Mr. Ott was able to provide the Court with fair, objective and non-partisan evidence,” write Shoor and Ramsoomair.

In fact, the TTC’s own expert witness did not offer any delay analysis of his own.

The Court found Walsh was entitled to 1,047 days of delays, most of which were related to “design issues.”

In fact, the TTC designs were not finalized at the time the contractor and subcontractors commenced their work.

Walsh had also received several subcontractor flow-through claims during the course of the project totalling over $61 million, which Walsh wished to pass on to the TCC. However, the court rejected these claims, saying it was Walsh and not the TTC that had contracts with the subcontractors.

Walsh had, in fact, made two arrangements with its subcontractors dealing with assignment and non-assignment liquidated agreements.

“Under the assignment liquidating agreements, Walsh paid the subcontractor an amount representing all the contractual payments due and payable to the subcontractor,” write Shoor and Ramsoomair. “In exchange, the subcontractor assigned its claim to Walsh and released Walsh from liability.”

The non-assignment liquidating agreements stipulated Walsh would pay subcontractors an amount representing the contract payments due and payable to the subcontractors in exchange for a release of Walsh. Should Walsh recover anything from TTC with respect to a subcontractor claim, Walsh would deduct a percentage for overhead, markup and costs incurred.

In the case of a “global recovery,” a pro-rated payment calculated by Walsh would be paid.

As a result of these agreements, Shoor and Ramsoomair write, “Walsh had no liability for the damages being claimed. The Court found that Walsh could not obtain recovery from TTC for the damages suffered by its subcontractors.”

Although design-bid-build contracts are popular because of their advantages of independence, Shoor and Ramsoomair point out owners can be exposed to risks if there are design issues and resultant delays.

“Owners should be aware of these risks and ensure all designs and drawings meet contractual obligations.”

The case also confirmed the importance of expert opinions when delay claims are being made. With the TTC failing to provide its own analysis, the Court had to rely solely on Walsh’s expert.

And then there is the issue of flow-through claims to the project owner.

“Walsh demonstrates that flow-through claims are a procedural device and do not create a new cause of action between a subcontractor and owner. There is no privity of contract between them,” write Shoor and Ramsoomair.

The assignment and non-assignment agreements between Walsh and subcontractors negated Walsh’s liability or potential liability for the damages they were claiming.

Although Walsh has appealed this aspect of the Court’s ruling, the risks to design-bid-build contracts are clear, and the lessons to the industry very evident.

John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.