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The Canadian Construction Contracts Guidebook

Author(s): Elliot A. Smith

Apr 26, 2019

The Canadian Construction Contracts Guidebook

Negotiating a construction contract for a project in Canada poses unique challenges for anyone involved in the project, including lawyers, owners, contractors, architects and engineers. From the simplest home renovation to the largest infrastructure project, it is very common that something unexpected and beyond the control of the parties involved in the contract will be encountered on the project — whether natural or differences in the built environment. When a contract is unclear or ambiguous about which party is responsible in the wake of an unanticipated event, it can often result in a dispute that ends up costing both parties valuable time and resources. Establishing an appropriately detailed and balanced contract between the various parties to a construction project can help reduce the risk of negative consequences arising from these instances.

This comprehensive resource, The Canadian Construction Contracts Guidebook, is a guide to support lawyers and anyone else in the construction industry who negotiates construction contracts. It is written by Elliot Smith, a partner in Osler’s Construction and Infrastructure Group, who is also a professional engineer and has over a decade of experience negotiating construction contracts. This easy-to-use guide addresses construction contract issues from the perspective of how best to establish the contractual arrangement, as opposed to addressing contract administration issues after-the-fact or trying to resolve a dispute once it has arisen on a construction project.

Lawyers, owners, contractors, consultants, subcontractors, material suppliers, or insurance and surety advisors can leverage this resource for guidance on virtually all types of construction contracts. The Guidebook starts by addressing the different forms of contract that may be appropriate for a project, and then covers all the major sections of a typical construction contract including:

  • Performance of the Work
    • General obligation to perform the work, notice to proceed, construction safety, subcontractors and suppliers, changes to the work, owner-supplied equipment, construction delay and more
  • Payment Structures and Payment for the Work
    • Fixed-price contracts, cost-reimbursable contracts, guaranteed maximum price contracts, lien legislation and more
  • Completing the Work and Warranties
    • Substantial completion, punchlists, final completion, warranties, latent defects and more
  • Liability
    • Title and risk of loss, indemnities, insurance, delay damages (including liquidated damages), limits of liability, performance security and more
  • Defaults, termination, and dispute resolution
    • Events of defaults, remedies for default, termination for convenience, dispute resolution and more

The Canadian Construction Contracts Guidebook is available in paper format:

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Table of Contents

Chapter 1 — Introduction

1. Overview

2. The importance of the construction contract

Chapter 2 — Starting with the right document

1. Pricing Models

(a) Fixed price vs. cost plus

(b) Guaranteed maximum price and hybrid models

2. Forms of Agreement

Chapter 3 — Performance of the work

1. General Obligation to Perform the Work

(a) Introduction

(b) Standard of care

(c) Scope of work

(d) Timely performance

2. Notice to Proceed

(a) Full notice to proceed

(b) Limited notice to proceed

3. Construction Safety, (OHSA)

(a) Construction safety generally

(b) Occupational health and safety

4. Subcontractors and Suppliers

(a) Overview

(b) Payment of subcontractors and suppliers

(c) Title transfer

(d) Step-in rights

5. Changes to the Work

(a) What is a change order

(b) Valuing changes

(c) Schedule impact

(d) Negative change orders

(e) Change directives

6. Owner-Supplied Equipment

(a) Overview

(b) Construction coordination risk

(c) Performance risk

7. Intellectual Property

8. Hazardous Materials

9. Key Personnel

10. Construction Schedule

(a) Introduction

(b) Critical path and float

11. Construction Delay

(a) Delays attributable to owner or contractor

(b) Force majeure and weather delays

(c) Change of law

(d) Unknown or unforeseen conditions

(e) Recovery and acceleration schedules

12. Provisions for Secured Lenders

(a) Overview of lender direct agreements

(b) Contentious points in lender direct agreements

(c) Other provisions for secured lenders

Chapter 4 — Payment for the work

1. Fixed Price Contracts

2. Cost-Reimbursable Contracts

(a) Overview

(b) Fixed elements in a reimbursable contract

(c) Cost of the work

(d) Importance of definition of cost of the work for other pricing models

3. Guaranteed Maximum Price Contracts

(a) Overview

(b) Guaranteed maxim price bonus

(c) Optional GMP

4. Unit Price Contracts

5. Payment Schemes: Milestone Payments vs. Progress Payments

(a) Overview

(b) Progress payments

(c) Milestone payments

(d) Mobilization payments

6. Cash Allowances

7. Lien Legislation

(a) Overview of lien holdbacks

(b) Substantial performance

(c) Holdback letters of credit and holdback bonds

(d) Removal of liens

Chapter 5 — Completing the work

1. Substantial Completion

(a) Contractual significance

(b) Substantial completion vs. substantial performance

(c) Requirements of substantial completion

(d) Certification of substantial completion

(e) Phased completion

2. Punchlist and Punchlist Holdback

(a) Development of the punchlist

(b) Punchlist holdback

3. Final Completion

4. Warranties and Latent Defects

(a) Introduction to construction warranties

(b) Scope and remedy

(c) Warranty period

(d) Subcontractor and supplier warranties — transfer and enforcement

(e) Latent defects

Chapter 6 — Liability

1. Title and Risk of Loss

(a) Title transfer

(b) Transfer of risk of loss

(c) Owner-supplied equipment

(d) International commercial terms (Incoterms1)

2. Indemnities

(a) Overview of construction indemnities

(b) Indemnification by the contractor

(i) Wilful misconduct and negligent acts and omissions of contractor and its subcontractors

(ii) Breach of contract, or violation of laws, regulations, or any applicable permits

(iii) Other indemnities

(c) Indemnification of the consultant

(d) Indemnification by the owner

3. Insurance

(a) Overview

(b) Liability insurance

(c) Builder’s all risk

(d) Contractor’s equipment

(e) Insurance certificates

4. Delay Damages

(a) Overview

(b) Delay liquidated damages

(c) Other considerations

(d) Bonus for early completion

5. Securing the Contractor’s Obligations

(a) Letters of credit

(i) Overview

(ii) Amount

(iii) Timing

(iv) Draw conditions

(b) Surety bonds

(c) Parent company guarantees

6. Securing the Owner’s obligations

7. Limits of Liability

(a) Contractor’s overall limit

(i) General

(ii) Scope

(iii) Insurance and other recovered amounts

(iv) Third party claims

(v) Quantum

(vi) Sample

(b) Consequential damages

(c) Liquidated damages

8. Waivers of Claims

(a) By contractor

(b) By owner

(c) Claims limitation period

Chapter 7 — Defaults, termination, suspension, and dispute resolution

1. Events of Defaults & Cure Periods

(a) Events of default

(b) Cure periods

2. Remedies for Default

3. Termination for Convenience

4. Suspension

5. Dispute Resolution

(a) Overview

(b) Informal dispute resolution

(c) Mediation

(d) Dispute resolution boards

(e) Arbitration


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