Holdbacks best practices bulletin issued by industry

A joint committee of the Ontario Association of Architects (OAA) and the Ontario General Contractors Association (OGCA) has released a bulletin outlining best practices with regard to use of holdbacks under the province’s Construction Lien Act.

A key point made in the three-page document is that the 10 per cent holdback is not intended for deficiencies or incomplete work.

“The issue of holdback and how it is applied under the lien act has been a consistent problem for as long as anyone can remember, mostly because it is not understood,” said OGCA president Clive Thurston.

“It has been misused and in some cases abused.

“The holdback is not there for deficiencies. It is there to cover any liens that are filed against the project.”

The bulletin is intended to educate architects and contractors as well as owners on the intention of the holdback. The 10-person committee has representation from the architectural and contracting communities as well as association staff.

The lien act sets out the rules as to who has a lien — security against the property — and the process by which lien claimants can enforce their various rights.

The bulletin makes the point that the holdback is not intended to be retained by an owner “as leverage or a penalty” because of deficiencies not corrected by a contractor or trades.

Rather, the holdback is held by an owner in trust for the benefit of downstream trades and suppliers who have no direct contract with the owner and possibly, the general contractor.

“While we have been very successful (in getting this point across) with Infrastructure Ontario and some other major owners, it is clear that the purpose of the holdback by and large is not clearly understood in the industry,” Thurston said.

The bulletin outlines a series of recommended best practices for architects, contractors and owners.

In the case of contractors, for example, the document recommends that discussions be held at an early stage with both the architect and owner on procedures for close-out, lists of deficiencies, substantial performance and release of holdback. These issues should be reviewed at the initial pre-construction meeting.

Post-construction, any deficiencies should be corrected as soon as possible.

The bulletin advises architects, in part, to include in the project manual specifications “clear” procedures for dealing with holdback, deficiencies and close-out.

These procedures should be reviewed with contractors and owners and any “variances in understanding” cleared up at an early stage.

“Architects should inform their clients of the difference between the two holdbacks (the lien act holdback and the holdback for deficiencies) and ensure their clients are comfortable with the amount of the deficiency holdback.”

As for owners, the document states that such parties should be knowledgeable about their obligations under the lien act, consult with their architects and their own legal advisers “and not suggest to consultants or contractors that the 10 per cent holdback be applied to deficiencies.”

Chris Fillingham, an OAA representative on the joint committee, said the document gives architects “a bit of ammunition” in dealing with clients who mistakenly believe the holdback can be used against deficiencies or incomplete work.

“This allows the architect to say ‘here’s a practice that is in line with the intent of the construction lien act,’” said Fillingham, who is also the current vice-chair of the Toronto Construction Association.