Proving Delay And Damages: Lessons On Critical Path Analysis And Insurance Recovery In Dependable Mechanical V Ledcor

It is a truism in the construction industry that a project will, outside of exceptional circumstances, encounter some sort of delay. These delays can and often do result in claims which, where not negotiable or otherwise resolved, can result in a dispute. Such claims are often challenged in court and can be subject to significant scrutiny.

In Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 ("Dependable Mechanical"), the Superior Court provided certain reminders on the standard of fact and expert evidence required to prove a delay claim, as well as the applicability of insurance policies to the calculation of damages. This decision offers several practical takeaways for contractors, subcontractors, and construction managers.

More recently, the Superior Court added its views on costs and the nature of the proceedings (including how a Court evaluates which party was "substantially successful" for the purpose of calculating costs in circumstances where the case resulted in mixed success for both parties). Both of these decisions are discussed below.

Background

Ledcor Construction Limited ("Ledcor") was engaged as a construction manager for a condominium project in Toronto owned by 41 Dovercourt LP (the "Project"). Ledcor entered into a subcontract with Dependable Mechanical Systems Inc ("DMS") for certain mechanical work.

The Project experienced delays for a number of reasons (including DMS-related delays with sleeving work and shop drawing submittals), and despite Ledcor providing documents setting out the sequencing and duration of trades to assist with trade coordination.

Ledcor later issued a written notice of default (the "Default Notice") to DMS under the subcontract, citing three defaults by DMS: (1) failing to supply sufficient manpower; (2) failing to provide proper supervision, along with proper quantities and quality of materials; and (3) failing to properly and diligently perform its work.

On the same date, Ledcor gave notice of a claim on its Subcontractor Default Insurance ("SDI") policy from AXA. AXA eventually paid Ledcor's claim, less a $750,000 deductible.

Unsurprisingly, DMS responded with a letter denying the alleged defaults, following which DMS's project manager delivered an email to Ledcor's project manager affirming DMS's manpower commitments. This was followed by DMS increasing its manpower on site, but Ledcor remained dissatisfied with DMS's performance.

Consequently, Ledcor sent a letter advising DMS that it remained in default for most of the reasons set out in the Default Notice. Shortly thereafter, Ledcor delivered a letter to DMS terminating its right to continue with the work, stating that DMS had failed to cure its default(s).

Ledcor subsequently retained Zencorp Mechanical Inc. ("Zencorp") as a completion contractor to complete the work which DMS had left unfinished.

In light of its termination, DMS claimed against Ledcor on the basis of: (1) entitlement to a lien for services and materials in the amount of $1,615,014.07 (which Ledcor subsequently bonded off); (2) further contract damages for $469,739.94; and (3) punitive damages for $250,000.

Ledcor counterclaimed for roughly $4.3M in damages (including in respect of costs to complete the work), and additionally sought the discharge of DMS's lien and return of its lien bond. Included in this claim were amounts related to the default, and damages for delay caused by DMS.

The stage was therefore set for a multi-issue dispute involving, among other things, termination rights, proof of delay, and the effect of SDI recoveries.

The Superior Court's Decision

The Court concluded that Ledcor owed DMS $50,994.37 and that DMS had a lien in that amount, but otherwise dismissed DMS's claim as well as Ledcor's counterclaim. In dismissing Ledcor's counterclaim, there was a significant contrast between the claimed expenses of Ledcor – totalling $5,551,890.76 – to the amount of back-charges that the Court found was proper for Ledcor to claim: $2,445,685.15.

The Court was faced with four issues in reaching this conclusion: (1) the credibility of each party's fact witnesses and expert witnesses for delay; (2) whether Ledcor wrongfully terminated DMS's right to continue working; (3) the measure of damages if the termination was valid; and (4) whether the AXA insurance recovery was relevant to the calculation of damages for either party.¹

Each of these issues is discussed below.

Credibility of Each Party's Expert Witnesses

Somewhat surprisingly, neither party produced a critical path analysis despite the fact that Ledcor claimed multiple delays caused by DMS.

DMS's schedule expert (as summarized by the Court) only performed an analysis to show that DMS's delay was as much the result of forces beyond its control as it was the result of factors attributable to DMS. Ledcor's expert confirmed that he was not performing a critical path analysis, and instead was simply reviewing DMS's work and critiquing DMS's expert. In other words, DMS's expert provided a general analysis which was not a critical path analysis for delay on the Project, while Ledcor's expert limited his analysis to a detailed critique of DMS's expert report.

Notwithstanding that Ledcor did not produce its own analysis, the Court found Ledcor's expert witness to be more credible, as he anchored his opinion on: (1) the subcontract; (2) the site records and schedules; (3) the updated project schedules and suite finishing matrices; and (4) the detailed Ledcor default notices.

By contrast, DMS's expert witness had credibility issues as she: (1) did not examine discovery transcripts or attend trial (other than to give her oral evidence); (2) did not consider the critical terms of the subcontract; (3) relied on DMS to fill in informational gaps from the documents she reviewed; and (4) did not address criticism from Ledcor's expert that she used an inappropriate method of delay analysis (the impacted-as-planned method²).

The credibility findings were decisive because they determined whether each party could prove delay on the critical path – ultimately, neither could. In other words, the absence of any critical path analysis from either expert significantly constrained the Court's ability to apportion responsibility for delay.

Ledcor validly terminated the DMS subcontract

The Court found that, among other things, DMS chronically understaffed the Project and failed to properly perform its work despite repeated warnings. Ledcor's expert used daily reports to track DMS's manpower totals. Ledcor's expert was also able to substantiate his opinion using a voluminous record of email correspondence between Ledcor and DMS running from March 2019 to November 2019 concerning the manpower shortage.

The most telling evidence on this issue was that, in response to the Default Notice, DMS promised a commitment of 34 workers going forward. At the time the promise was made, DMS's crew numbered 15, and only ever managed to reach 29 – in other words, DMS effectively admitted by its conduct that there was inadequate manpower.

The Court also rejected DMS's argument that other trades caused its inability to perform because, based on Ledcor's expert testimony, the on-site work often did not occur in the sequence identified by Ledcor's "suite finishing matrix" (which ostensibly dictated the sequence of work). Instead, two (or more) sequential trades worked together without interfering with each other. Ledcor's expert successfully relied on Ledcor's superintendent daily reports from October and November of 2019 to show that DMS worked with other trades on the same floors without interfering with each other.

Accordingly, the Court concluded that Ledcor was entitled to terminate DMS.

The Measure of Damages

The subcontract specified that if Ledcor terminated DMS's right to continue with the work and finished the work itself, Ledcor was entitled to apply its expenses incurred in finishing the work of the contract against the unpaid balance of the subcontract price actually received from the Owner. Thus, if Ledcor's expenses exceeded this unpaid balance, the excess was to be paid by DMS to Ledcor.

Expenses were defined in the contract to include any expenses Ledcor incurred to complete the work of the contract, including attorney's fees and damages due to DMS's default.

As such, Ledcor structured a claim on the basis of multiple expenses that it alleged it incurred as a result of DMS's default, such as replacement costs, delays caused by DMS, and various types of repairs.³

Under the subcontract, the measure of damages was the actual costs Ledcor incurred in completing the DMS scope, plus markup. Ledcor had the onus of proving that these costs were: (1) in fact incurred, on a balance of probabilities; (2) reasonable; (3) related to DMS's scope; (4) did not include changes made after DMS's termination; and (5) did not result from improper mitigation.⁴

The largest cost item claimed by Ledcor was in respect of the costs to engage the completion contractor to complete the work. The Court reduced this claim from roughly $2M to $800K, in part because Ledcor admitted to receiving the payment pursuant to the SDI policy but failed to provide any further evidence, which left the Court concerned that Ledcor had not exercised restraint in incurring completion costs, particularly where they would be covered by the SDI policy.⁵ As well, Ledcor's key fact witness gave contradicting amounts for the costs to complete the mechanical scope of work, leading to a creditability issue.

In other words, according to the Court, there was no reliable evidence that Ledcor mitigated the costs to complete given the expectation that they were covered by the SDI.

The Court then rejected Ledcor's delay claim, explaining that in order to prove such a claim, the claiming party must "through the evidence isolate and define the delay, show that the delay affected the critical path of the project, and show that the other side was at fault for the delay as opposed to being excusably delayed".⁶ Here, the Court found, for the most part, that for each category of cost sought under this claim, Ledcor's position lacked sufficient evidence.

For example, Ledcor sought head office overhead costs; given that there was no evidence showing that DMS solely impacted the critical path (i.e. as opposed to concurrently with other causes), and given that neither expert performed a critical path analysis, this category of cost was not proven.

However, the Court did accept that Ledcor had proven certain of its back-charges, which related primarily to Ledcor's direct costs of repairing or completing certain scopes of work itself.

Turning to the determination of the unpaid balance to be paid under the subcontract, the Court applied the accepted back-charges against the unpaid balance to be paid to DMS under the subcontract, finding a balance of $50,994.37 to be paid by Ledcor to DMS.⁷

The SDI policy payment did not prevent recovery against DMS

As concluded by the Court, Ledcor did not suffer damages, as they had been paid by the Owner, but had not paid DMS (and in fact had a balance owing to DMS). However, the Court decided to address the issue of whether the SDI policy recovery was relevant to damages in case it became relevant in the future.

The Court recognized the private insurance exception to the double recovery rule that would otherwise have applied had Ledcor suffered damages: in general, benefits received by a plaintiff through private insurance are not deductible from damage awards.⁸ This exception is based on fairness, in that a wrongdoer should not "benefit from the private act of forethought and sacrifice of the plaintiff in obtaining private insurance."⁹ Thus, if Ledcor had suffered damages, it would not be barred from recovery against DMS on the basis that it had received payment under its subcontractor default policy.¹⁰

The Court concluded that Ledcor owed DMS $50,994.37 pursuant to the contract, and that DMS had a lien in that amount, but dismissed DMS's claims for contract damages and punitive damages.¹¹ This was because at the end, there was an unpaid balance on the amount to be paid under the contract in favour of DMS.¹²

In the updated decision on costs (discussed below), the Court noted that it had miscalculated the amount owed to DMS, and that it was actually owed $179,681.59.¹³

The Superior Court's Decision on Costs

In its subsequent costs decision, the Court noted that the trial's outcome was the most significant factor in determining costs. Here however, complexity arose as a result of multiple issues and the divided success between the parties. DMS claimed it was the successful party because it obtained a ruling that entitled it to breach of contract damages and a lien, and because Ledcor's counterclaim was dismissed. However, the Court did not agree with this position.

The Court explained that in cases with several issues and a divided result, the key question was which party was "substantially successful". This is determined by considering which party prevailed on the issues driving the action, rather than the "numeral [sic] net outcome of the ruling".¹⁴ In this case, the core issue was the liability of the parties for Ledcor's decision to terminate DMS's work. Ledcor was able to prove that it had the right to terminate DMS. The only reason that DMS did not owe money to Ledcor was that Ledcor proved only 41% of the quantum of its claimed back-charges.

Regarding the quantum, the Court specified that although the amount was substantial ($248,630), Ledcor's expert fees were reasonable. Ledcor's expert was more convincing and helpful to the case.

Ultimately, the Court ordered DMS to pay Ledcor partial indemnity costs of $415,000, representing 41% of Ledcor's claim for partial indemnity costs, corresponding to the quantum proven by Ledcor.

Commentary

Dependable Mechanical provides several useful reminders to parties seeking to advance construction claims.

Methods for Assessing Delay

It was perhaps surprising (in light of recent case law) that, according to the Court, neither party delivered a critical path analysis in support of their respective claims. We have written about the risks associated with this approach elsewhere, as it creates the risk of an all-or-nothing scenario where the Court is forced into a binary choice of selecting one or no delay analysis rather than choosing from competing possibilities provided by the expert evidence.

This also reinforces that delay cannot be meaningfully assessed without a structured method of evaluating critical path impact. Interestingly, though, it is clear in this case that both experts did engage in schedule analysis to some indeterminate extent, raising the question of what constitutes a sufficient schedule analysis to prove a delay claim.

While the Court framed delay strictly through the lens of critical path impact, it is important to also distinguish between "project delay" and impacts to a subcontractor caused by extended durations. A subcontractor may experience disruption, inefficiency, or out-of-sequence work that materially affects its costs and productivity – even if those events do not delay the overall project's critical path. In other words, a subcontractor can be harmed without causing a critical path delay. Modern delay analysis often separates these concepts, recognizing that proving entitlement to compensation for productivity losses may require different evidence than is necessary to prove critical path delay to the project as a whole. This accordingly raises the question of whether the absence of a critical path analysis should necessarily defeat a subcontractor's claim for disruption, inefficiency or prolongation of their specific work.

Dependable Mechanical also illustrates that the lack of a critical path analysis can effectively neutralize a delay claim from both sides. Although the Court noted differences in the experts' approaches, its ultimate conclusion on the issue of delay caused by DMS (i.e., that neither party met its evidentiary burden)¹⁵ reinforces the expectation that parties advancing a critical-path delay claim must be prepared with a detailed report or analysis which utilizes recognized methodologies for schedule review.

The decision also emphasizes on the importance of distinguishing between project-wide delay and subcontractor specific delay or prolongation. Claims which are rooted in inefficiency or out-of-sequence work, or extended durations, may require specialized forms of evidence and analysis. Failing to articulate that clearly at the outset risks a claim being rejected or discounted even where the claiming party otherwise incurred legitimate amounts.

In addition, the Court provided a useful reminder of the potential limitations of the impacted as-planned method of delay analysis. While not covered in detail in the decision, the impacted as-planned method can sometimes be subject to critique because it contains inherent limitations (including, for example, its reliance on the baseline schedule which may quickly become outdated, as well as its weakness in dealing with concurrent delay). While it may be appropriate in certain scenarios (e.g. in forecasting future delays, or if contemporaneous data is limited), parties would be well-advised to scrutinize their choice of methodology in circumstances of an end-of-project claim.

The Private Insurance Exception to Double Recovery

Although in obiter, the Court also provided a helpful reminder regarding the private insurance exception and how it may be a double-edged sword in cases where a policy payment overlaps with a damages claim. Parties may feel reassured that insurance recovery will not preclude a damages claim for the same amount, but this proposition is subject to at least two caveats:

• First, it is possible that the construction contract includes a term precluding double recovery of this nature, in which case the contract term may override the private insurance exception (which is a common law rule); and
• Second, although only alluded to briefly by the Court, it is possible that this exception would have no application if the insurer releases their right of subrogation. In circumstances where the insurer exercises this right, there is no risk of double recovery because only the insurer would be recovering against the defaulting party; but in circumstances where the insurer declines to exercise that right, then the risk of double recovery becomes more apparent.

Similarly, parties recovering under insurance policies – particularly SDI policies – would be well advised to lead detailed evidence of the circumstances surrounding such policy payments, in order to avoid the risk of a court concluding that the insured has failed to exercise restraint in incurring the costs covered by the policy in question.

Best Practices for Project Record-Keeping

Dependable Mechanical underscores the importance of clear and contemporaneous project record-keeping. Ledcor's reliance on daily reports to establish chronic understaffing and DMS's own commitment to increase manpower – combined with its failure to later meet that commitment – proved to be damaging to DMS. Parties issuing or responding to default notices should be cautious and ensure that manpower levels and resource allocations are documented clearly and accurately.

The sequence and quality of correspondence surrounding the alleged defaults can materially influence the Court's assessment. In default or termination scenarios, one of the most critical elements to success is not only contractual compliance in issuing the notice, but also the presence of clear factual records supporting the alleged default. Ledcor's escalating and specific notices supported the reasonableness of the termination in the Court's view. By contrast, generic or inconsistently worded notices may attract greater scrutiny and risk being found invalid. Construction managers, contractors, subcontractors and suppliers (as well as owners) should therefore approach default correspondence with care – ensuring that the written record accurately reflects the ongoing concerns and responses.

Finally, the Court's treatment of completion costs is noteworthy from a cautionary perspective. Generally, and even more specifically when SDI or similar insurance is involved, courts can and will scrutinize completion costs closely. This is particularly true when evidence regarding communications with insurers or around insurance is limited. Parties seeking recovery of completion costs should lead a fulsome evidentiary record demonstrating that the costs were incurred prudently. In matters involving sureties and performance bonds, we similarly recommend that parties ensure the costs of their completion work are meticulously tracked and recorded.

Costs and the Substantiation of Damages

The decision on costs highlights the potential for a party to obtain a pyrrhic victory in being technically successful in proving its claims, but still being required to pay the other party's costs. For complex cases with multiple issues and divided results – which is not uncommon in construction litigation – it is important to remember that the issue of which party is "substantially successful" is measured by the extent of the parties' success on the matters at issue.

Conclusion

In conclusion, the court's decisions in this case underscore the importance of clear contract terms, thorough documentation, and expert testimony in construction disputes. The rulings highlight the need for parties to meticulously maintain project records and to be prepared for detailed scrutiny of their claims. By understanding the nuances of delay analysis, insurance recovery, and cost allocation, construction professionals can better navigate the complexities of legal disputes and protect their interests.

As always, it is important to retain experienced construction lawyers and experts in your construction project or litigation matter. To the extent you have questions about this case or related issues, reach out to the authors and we will assist you.

Footnotes

1. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at paras 43-44.

2. Specifically, Ledcor's expert criticized her for (1) using the impacted-as-planned method given that it does not recognize the dynamic, multi-party nature of construction projects and delay, and (2) misapplying that method by using various schedule updates and as-built dates rather a single marker, such as the original schedule.

3. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 116.

4. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 119.

5. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 131. There were also credibility issues with Zencorp's project manager, and contradicting evidence given by Zencorp and Ledcor, see paras 122-130.

6. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 141.

7. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 199. In that regard, the Court also concluded that quantum meruit applied to unpaid work on legitimate-but-unpriced/uncertified extras performed by DMS, notwithstanding the contractual requirement that there be no adjustment in the price or schedule without Ledcor's written authorization, because Ledcor had waived the application of that requirement by its conduct.

8. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 204; see also Cunningham v Wheeler, [1994] 1 S.C.R 359 at pp 369-370.

9. Cunningham v Wheeler, [1994] 1 S.C.R 359 at pp 369-370

10. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para at paras 204-207. Interestingly, AXA did not subrogate to Ledcor's position despite paying funds to Ledcor under the SDI policy; the Court's judgment does not explain why.

11. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 208.

12. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at para 199.

13. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2026 ONSC 188 at para 5.

14. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2026 ONSC 188 at para 10.

15. Dependable Mechanical Systems Inc v Ledcor Construction Limited, 2025 ONSC 5100 at paras 139-143.

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