Non-compliance with completion certification on projects can lead to liability claims

Experience indicates that some design professionals who are responsible for completion certification on construction projects are not fully complying with the procedures provided by the British Columbia Builder’s Lien Act for that process. Such non-compliance can complicate the triggering and calculation of lien filing time and holdback release periods. This could lead to professional liability claims against a certifier.

Owners, contractors, and subcontractors rely on prime consultants’ proper performance of completion certification. If that function is not properly performed, owners risk releasing holdback funds early and potentially incurring excess holdback liability. Conversely, contractors and subcontractors may be unreasonably delayed in their receipt of substantial holdback amounts. If any of those parties suffers loss in that way, it may consider seeking legal recourse from the responsible certifier. It is important that those who certify completion know and properly perform the requirements of that process.

The following are the main areas of concern:

– early or late certification of substantial performance:

Sections 1,2, 3 and 4 of the Act set out the criteria for determining completion (i.e. substantial performance) on a construction project. For a head contract, contract or subcontract, the main criterion is satisfaction of the “3-2-1” formula of the remaining cost of completion or correction relative to the total contract or subcontract price. As an alternative, or for circumstances such as a cost-plus contract in which the contract price and therefore the cost to complete or correct cannot be determined, a second criterion is that the improvement is ready for use or being used for the purpose intended. Finally, for condominiums, substantial performance of the construction or contract for construction is stated to be no later than the date of the first occupation of the strata lot.

The Act does not prioritize between the application of the first and second criteria. However, it appears that if both of those criteria can be applied, substantial performance should be deemed to have occurred when the earlier of them is satisfied.

This means that a certifier must not only avoid certifying completion too early, but also should not unjustifiably delay certifying completion once the state of the construction satisfies the minimum statutory requirement.

– Failure to follow prescribed procedures:

Substantial performance will occur as a matter of fact when one or other of the statutory criteria is satisfied, regardless of whether it is certified. However, the Act generally anticipates that certification will be given, and, if so, will be determinative for the purpose of recalculating applicable lien filing and holdback release times.

Section 7 of the Act requires that the “payment certifier” designated by a contract or subcontract determines within ten days of a request by a contractor or subcontractor whether the contract or subcontract has been substantially performed and, if so, issue a certificate of completion. The Act provides as its Form 3 a suggested form of “Certification of Completion.” The use of that form is not mandatory, since it is only stated to be sufficient to comply with the Act, but it is recommended for that reason.

Section 7 also requires that the payment certifier within seven days of issuing a certificate of completion post a notice of certification of completion in a prominent place on the improvement. This requirement is additional, not an alternative, to issuing a certificate of completion. The Act provides as its Form 2 a prescribed form of “Notice of Certification of Completion.”

If the payment certifier unreasonably fails or refuses to issue a certificate of completion, he or she may be “liable to anyone who suffers loss or damage as a result.”

Under Sections 8 and 20 of the Act, lien filing and holdback release periods commence on the date of issuance of a certificate of completion. This creates an additional practical reason for issuing a certificate without delay once it is justified and means that a certificate should not be “backdated” to any earlier date on which it is deemed that completion was achieved.