Below is our message to a client describing a situation we encounter often – the incumbent maintenance contractor insists on the balance of contract term, even though modernization is planned.
With regard to our conversation today about [incumbent elevator contractor’s] claim that their maintenance contract will survive modernization of the equipment by another contractor, and the condominium board’s concerns:
Traditionally in the elevator industry, it was held that once equipment reached the point that it needed modernization, there was no enforcement of the balance of the maintenance contract. Recently [incumbent elevator contractor] has become an exception, and in this case uses the balance of the contract term as, in our opinion, leverage for getting single-sourced modernization.
The condominium has received three competitive bids for non-proprietary equipment. In our opinion, even if the board paid [incumbent elevator contractor] a penalty, they would still come out ahead if they awarded the modernization at a higher cost to another elevator contractor who would provide non-proprietary equipment, which would require maintenance for the next 25 years.
[incumbent elevator contractor] rejected the premise of the bidding process, and therefore it was decided at the time that it did not make sense to invite their bid. We don’t believe that inviting them or not inviting them has any bearing on the validity of the maintenance contract.
We have heard at least one lawyer indicate that in his opinion if an elevator maintenance contract is in place for equipment that is substantially removed, the balance of the contract is void – essentially “frustration of contract”. We don’t know that this has ever gone to Canadian court and been tested.
The term of your contract implies that the next rollover date is December XX, 2018. If [incumbent elevator contractor] were able to enforce the maintenance contract, the Board’s exposure would be the monthly rate, times the number of remaining months, times the reasonable profit level of the contract. So perhaps that is 30% of dollar value. Of course, [incumbent elevator contractor] can claim whatever profit level they want, but once in court will have to prove it. We would imagine that an international company would not relish going to court and claiming exorbitantly high profit levels on maintenance contracts, as those claims will become public knowledge through court documents.
The fact that [incumbent elevator contractor] declined to repair a component covered under the contract (door operator), deeming it non-fixable and requiring payment of $18,000, suggests they were either not dealing in good faith, or did not have the ability to properly service the equipment, given the very quick and low-cost repair that was put into effect by [second elevator contractor], who didn’t even have the same maintenance obligations as [incumbent elevator contractor].
In our opinion, the fact that [incumbent elevator contractor] unilaterally moved to quarterly maintenance after many years of establishing an agreed-upon regime of monthly maintenance undermines their adherence to the contract.
As an absolute last resort, it would be possible to award the modernization to one of the bidders and then after the the expiration of the warranty, revert the maintenance to [incumbent elevator contractor] under the “balance” of their maintenance contract. We would view this only as a last resort.
We hope that this information is of use.
Rooney, Irving & Assoc. Ltd.