Attendees of a recent webinar entitled The Construction Act and Contracts, learned about the mandatory items now included in the act that cannot be contracted out.
“There are all kinds of obligations that come up in your contract which are different. You still have those obligations even if they’re not in the statute,” said Krista Chaytor, partner at WeirFoulds LLP, which hosted the session. “We’re just sort of trying to highlight some things that you can’t contract out of.”
The webinar was held in late October and the guest speaker was Quin Gilbert-Walters, legal counsel with Pomerleau.
Construction liens are probably the most well-known and famous right that you cannot contract out of in a construction context, Chaytor explained.
“It really doesn’t matter what deal you make with your subcontractors, if you are a contractor or if you are an owner with a contractor,” she said. “Any deal at all in the construction context you make that’s intended to change the rights that the parties have under the construction act is void.
“It’s not just the lien that you can’t contract out of, it’s the nuts and bolts of how liens work as well,” she added. “For example, you can’t have an agreement that says you won’t lien the project.”
Jeff Scorgie of WeirFoulds pointed out it’s important to pay particular attention to contracts with owners and clients from other jurisdictions.
“If they are owners, they are corporations from other jurisdictions like in the U.S., for example, where you can waive construction lien rights in certain states, they will have terms in their contracts that say, ‘with each application for payment you’re going to provide me with a lien waiver,’” said Scorgie. “That lien waiver, even if that term is in your contract, that’s not going to be effective. Even if you signed it, you can’t actually waive away the lien rights.”
He encouraged the contractors to communicate that point with the owners to ensure they are on the same page.
“That’s something that could be a fundamental misunderstanding that is probably worth bringing it up with the client,” he said.
You also can’t contract out of the 10 per cent holdback obligation under the Construction Act. Everyone from the owner to the contractor and subcontractor down the chain all have to retain the 10 per cent holdback, Scorgie said.
“The release of holdback under the Construction Act is now mandatory in the sense that the statute says that the owner shall release the holdback after the expiry of the construction lien period, which can vary but usually it’s 60 days after the publication of the certificate of substantial performance,” he said.
Under the new act, the owner is forced to release the holdback assuming there are no liens.
“The only exception is if the owner is going to retain the holdback for some reason. It has to publish a notice of non-payment of holdback in a construction trade newspaper like the Daily Commercial News…indicating it is not going to release the holdback and it has to do that on the 40th day after the publication of substantial performance,” said Scorgie.
“The previous Construction Lien Act before 2018 said the owner ‘may’ release the holdback and that caused a lot of problems because owners would just hold on to the holdback. The lien period would expire and then all the lien claimants would have lost their lien rights.”
There are also mandatory obligations with respect to trust funds in the act. When the act was amended, a section was added about contractor and subcontractor duties regarding trust funds, Chaytor said.
“There are mandatory obligations to deposit the funds in an account in the trustee’s name and then to keep separate books and records for each project’s trust funds,” she noted.
Mandatory bonding is also something to be aware of.
“If you are under a public contract, this is a new concept in the new iteration of the Construction Act,” Chaytor said. “There is now a mandatory requirement for the contractor to provide a 50 per cent performance bond and a 50 per cent labour and material payment bond as long as the contract price is $500,000 or over. It’s important to appreciate that the form of these bonds is prescribed by the Construction Act so you can’t just use the CCDC form of bonds.”
Responding to requests for information is also a mandatory requirement.
“For example, a subcontractor can issue a request for information to a contractor, to the owner, to find out certain information like is there a labour and material payment bond, what is the contract price, who are the names of the parties to the contract…when was the procurement commenced,” Scorgie said.
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