An Ontario construction lawyer is encouraging contractors and owners to review the construction contracts they use in light of reforms contained in the new Ontario Construction Act implementing prompt payment and adjudication.
Robert Kennaley of Kennaley Construction Law identified those reforms and other trends and doctrines in a blog he recently wrote that appeared on his firm’s website and elsewhere including the Lexology site.
Kennaley begins by noting that Canadian Construction Documents Committee (CCDC) contracts are getting increasingly long with the standard form CCDC2 stipulated-price contract, for example, running 30 pages while the recently released CCDC 5B Construction Management Contract runs to “an incredible 59 pages.”
As such, he wrote, for smaller residential or commercial contractors, “it is simply not commercially feasible to drop a 30-, 40- or 50-page document on the table and expect their clients to sign off” and so many contractors are creating their own documents.
The observations on the CCDC contracts were not to be taken as criticism, Kennaley said in an interview.
“The article wasn’t meant to be a shot at standard forms,” he remarked. “They hold an incredibly important place. If you are building any sophisticated commercial project you are going to want to have a sophisticated contact, and the usual best place to start is with standard forms.”
From a lawyer’s perspective, he said, the various CCDC and other standard contracts, such as the Ontario Provincial Standard Specification document, are important in covering all bases in risk allocation.
But from a business perspective, he said, some contractors and subcontractors are not willing to trouble their business partners with such complicated and long documents.
“From a business-relationship standpoint, they feel they have to dial it back. There is too much legalese and it becomes problematic,” he said.
The existence of alternative contracts is not new, Kennaley said. When non-standard contracts are being created the lawyers should take account of such principles and issues as contra preferentum, the dictates of consumer protection legislation, implied terms and customs of the trade.
And especially now in Ontario, there is prompt payment and adjudication. That’s reason enough for contractors to undertake a review of their contracts, he said.
“Prompt-payment legislation will override all contacts including standard forms as regards payment provisions,” he said. “The payment provisions need to be addressed.”
It is like looking under the hood of a car, he said — the driver might only be thinking of topping up the washer fluid but while there, the other fluids should be checked as well.
“There is a lot of tweaking of non-standard-form contracts occurring,” said Kennaley. “And people need to think of all the various issues that they need to consider when they do that.”
The danger is, he said, as stakeholders pick and choose which risk allocation they wish to focus on in their contracts, “Some do it well, some do it not so well.”
Kennaley’s approach was supported by Geza Banfai, a construction lawyer with McMillan who is an ex officio legal representative on the CCDC.
“I think the basic point made in Rob Kennaley’s article is sound, namely that CCDC contracts are often not appropriate for small residential or commercial projects,” Banfai said in emailed comments.
In cases of a simple design with little or no construction oversight or payment certification, where the risks to the owner are relatively small, “A simple bespoke document will usually suffice,” he said.
“Are construction contracts generally getting longer and more complicated? Sure,” he said.
“The construction process itself is getting more complicated, and contracts need to keep up with that complexity. Combine that with other factors such as the diminishment of trust in our society and increasing ‘legalization’ of commercial relationships generally, and you have longer contracts.”
The CCDC remains the gold standard for standard-form construction contracts in Canada, Banfai said. The framers strive for economy in its language and have been quite successful in keeping its standard forms within reasonable limits, Banfai said.
As for the 59-page CCDC 5B contract, Banfai said about half that length is a set of familiar CCDC 2 terms intended to apply only if the parties lock into a lump sum after contracting.
Kennaley agreed, saying the list of items in the 5B contract is “extremely helpful and very important, so I am not suggesting at all that it should be shorter.”
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