Construction Law

Third Wave of Pandemic Prompts Restrictions to Construction Activities

Due to the third wave of the COVID-19 pandemic in Ontario, on April 17, 2021 the Province of Ontario amended Regulation 82/80 (the “Regulation”) to restrict construction related activities across the province.

Prior to the April 17, 2021 amendment, the Regulation allowed all “[c]onstruction activities or projects and related services that support construction activities or projects, including demolition services” to proceed. That is no longer the case as construction is limited to those activities set out in the amended Regulation. The full list of permitted construction related activities is set out at the end of this article. However, the following are some of the more notable ones:

  • Projects associated with health care or long-term care sectors, including spaces that could be repurposed for health care space;
  • Residential construction activities or projects and related services;
  • Projects that support or provide new capacity in schools, colleges, universities, or specified child care centres;
  • Work necessary for the production, maintenance or enhancement of PPE, medical devices and other productions directly related to combatting the pandemic;
  • Construction funded by the federal, provincial, or municipal government;
  • Maintenance, repair and property management services involved with managing and maintaining the safety, security, sanitation and operation of institutional, commercial, industrial and residential properties and buildings;
  • Construction to prepare a site for an institutional, commercial, industrial or residential development; 
  • Construction intended to provide shelter or supports for vulnerable persons or affordable housing;
  • Projects that ensure the safe and reliable operations of, or provides new capacity in municipal or provincial infrastructure, such as the transit, transportation, resource, energy and justice sectors;
  • Activities that provide additional capacity in the production, processing, manufacturing or distribution of food, beverages or agricultural products; and
  • Landscaping services.

For those construction projects that are not allowed to continue, activities that are necessary to temporarily close construction sites in order to ensure ongoing public safety are permitted.

There is some confusion over whether certain construction activities fall within the Regulation’s scope. For example, whether “landscaping services” are limited to simple lawn maintenance activites, or also includes substantial landscaping construction. Those that are uncertain about whether their activities are caught by the Regulation can consult the toll-free service established by the Province to support businesses that have questions about these restrictions at 1-888-444-3659, or else should seek the advice of legal counsel.

The list of permitted construction activities set out in the Regulation are as follows:

Services

  1. Snow clearing and landscaping services.

Maintenance

  1. Maintenance, repair and property management services that manage and maintain the safety, security, sanitation and operation of institutional, commercial, industrial and residential properties and buildings.

Construction

  1. Construction activities or projects and related services, including land surveying and demolition services, that,

(a) are associated with the health care sector or long-term care, including new facilities, expansions, renovations and conversion of spaces that could be repurposed for health care space;

(b) ensure safe and reliable operations of, or provide new capacity in,

(i) municipal infrastructure, or

(ii) provincial infrastructure, including but not limited to, the transit, transportation, resource, energy and justice sectors;

(c) support the operations of, or provide new capacity in, electricity generation, transmission, distribution and storage, natural gas distribution, transmission and storage or in the supply of resources;

(d) support the operations of, or provide new capacity in, schools, colleges, universities or child care centres within the meaning of the Child Care and Early Years Act, 2014;

(e) are required for,

(i) the maintenance and operations of petrochemical plants and refineries,

(ii) significant industrial petrochemical projects where preliminary work commenced before April 17, 2021, or

(iii) industrial construction and modifications to existing industrial structures limited solely to work necessary for the production, maintenance or enhancement of personal protective equipment, medical devices such as ventilators and other identified products directly related to combatting the COVID-19 pandemic;

(f) would provide additional capacity in the production, processing, manufacturing or distribution of food, beverages or agricultural products;

(g) were commenced before April 17, 2021 and that would,

(i) provide additional capacity for businesses that provide logistical support, distribution services, warehousing, storage or shipping and delivery services,

(ii) provide additional capacity in the operation and delivery of Information Technology (IT) services or telecommunications services, or

(iii) provide additional capacity to, or enhance the efficiency or operations of, businesses that extract, manufacture, process and distribute goods, products, equipment and materials;

(h) support the operations of broadband internet and cellular technologies and services;

(i) are residential construction activities or projects and related services;

(j) prepare a site for an institutional, commercial, industrial or residential development, including any necessary excavation, grading, roads or utilities infrastructure;

(k) are necessary to temporarily close construction sites that have paused, or that are not active, to ensure ongoing public safety;

(l) are funded in whole or in part by,

(i) the Crown in right of Canada or in right of Ontario,

(ii) an agency of the Crown in right of Canada or in right of Ontario, or

(iii) a municipality;

(m) are,

(i) intended to provide shelter or supports for vulnerable persons or affordable housing, and

(ii) being funded in whole or in part by, or are being undertaken by,

(A) the Crown in right of Canada or in right of Ontario,

(B) an agency of the Crown in right of Canada or in right of Ontario,

(C) a municipality,

(D) a service manager as defined the Housing Services Act, 2011,

(E) a registered charity within the meaning of the Income Tax Act (Canada), or

(F) a not-for-profit corporation; or

(n) support the operations of, or provide new capacity for, veterinary facilities within the meaning of the Veterinarians Act.

Lawn care

43.1 Lawn care services, snow clearing and landscaping services.

Supreme Court Confirms Contractual Duties of Honest Performance and Good Faith Exercise of Discretion

The Supreme Court of Canada released two decisions clarifying the organizing principle of good faith in contract law, which it first recognized in Bhasin v. Hrynew, 2014 SCC 71. The organizing principle of good faith includes several more specific duties, such as the duty of honest performance and the duty to exercise contractual discretion in good faith. This principle and the duties thereunder apply to the performance of contracts generally, including the performance of construction contracts.

Callow and the Duty of Honest Performance

In CM Callow Inc v. Zollinger, 2020 SCC 45 (“Callow”), the plaintiff provided maintenance services to the defendant condominium corporations. The defendants received complaints about the plaintiff’s work and decided to terminate the plaintiff’s two-year contract early and in accordance with a contractual provision which allowed them to terminate on 10 days’ notice. However, the defendants did not inform the plaintiff of their intention to terminate the contract, and instead had a meeting with the plaintiff during which they suggested that the contract was likely to be renewed. Unaware that the defendants had already decided to terminate the contract, the plaintiff performed extra work above and beyond the requirements of the contract, for which it was not paid, in the hopes of having the contract renewed. The defendants then terminated the contract.

The Supreme Court of Canada confirmed that the duty of honest performance applies to all contracts and cannot be excluded by agreeing to a contractual term that allows for an unfettered right to terminate the contract for convenience. The duty prohibits parties from lying or otherwise “knowingly misleading” each other about matters directly linked to the performance of the contract. This includes not only overt lies but also “half-truths, omissions, and even silence, depending on the circumstances”. For example, although the duty of honest performance is not a duty of disclosure, it may require a party to correct a mistaken belief caused by its own misleading conduct, including in circumstances where a party makes a statement and later discovers that its statement was false.

The Court held that the defendants knowingly misled the plaintiff by actively communicating that its contract would be renewed. The defendants knew that the plaintiff held a mistaken belief, but failed to correct it and continued to accept extra work performed by the plaintiff. Accordingly, while the defendants may have had a right to terminate the contract, the manner in which they did so was dishonest.

The Court held that the plaintiff was entitled to expectation damages for the defendants’ breach of the duty of honest performance. The Court held that while damages are to be measured against a defendant’s least onerous means of performance, the least onerous means of performance in this case would have been to correct the misrepresentation once the defendant knew that the plaintiff had drawn a false inference. Had it done so, the plaintiff would have had the opportunity to secure another contract for the upcoming winter. There was ample evidence that the plaintiff had opportunities to bid on other contracts but chose to forego those opportunities based on its misapprehension as to the status of its contract with the defendant.

In order to place the plaintiff in the position it would have been in had the defendant performed its duty, the Court restored the trial judge’s decision to award the plaintiff $64,306.96 on the basis that the plaintiff would have made an amount that was at least equal to the profit it lost under the winter maintenance agreement. The Court also restored the trial judge’s award of an additional $14,835.14 for the plaintiff’s one-year lease of machinery which it would not have leased had it known that the contract would be terminated.

Wastech and the Duty to Exercise Contractual Discretion in Good Faith

In Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (“Wastech”), the parties entered into a waste disposal agreement. The contract granted the defendant discretion to allocate waste flow between two landfills, one of which (the “long-haul route”) was significantly more profitable for the plaintiff than the other (the “short-haul route”). The contract included an aspirational figure called the “Target Operating Ratio” which presumed an 11% profit for the plaintiff. However, one year the defendant decided to exercise its discretion to significantly reallocate waste flow to the short-haul route, which led to the plaintiff achieving a profit of only 4% that year.

Similar to the duty of honest performance, the Supreme Court held that the duty to exercise contractual discretion in good faith applies to all contracts and cannot be outright excluded by an “absolute” or “unfettered” discretion clause, although the parties’ intentions as laid out in the contract may determine the content of the duty. The duty is met when the party exercising its contractual discretion does so “reasonably”. Reasonableness is determined by considering whether the exercise of discretion was consistent with the purposes for which the discretion was granted under the contract. By contrast, the duty is breached where the party exercising its discretion does so for an improper purpose, contrary to the parties’ intentions.

The purpose of a contractual discretion clause may be clear from the text of the contract itself, or it may be understood by considering the clause in the context of the entire agreement. Where the clause can be measured objectively (e.g. by fair market value, structural completion, etc.), the discretion may be interpreted more narrowly. However, where the clause can only be measured subjectively (e.g. by a party’s preferences or judgment), the discretion may be interpreted broadly.

In Wastech, the Court found that the discretion clause was broad and adopted for the purpose of allowing the defendant to maximize efficiency and minimize costs. The defendant’s decision to significantly reallocate waste disposal to the short-haul route was consistent with this purpose, and therefore reasonable. While the defendant had a duty to exercise its contractual discretion in good faith, this did not mean it had to subvert its own interests to those of the plaintiff, nor did it have to grant the plaintiff an advantage for which it did not bargain. 

Accordingly, the Court dismissed the claim and held that the plaintiff was not entitled to damages.

Takeaways for Construction Contracts

As the organizing principle of good faith in contracts underpins contract law generally, it is applicable to construction contracts. Callow and Wastech interpret and apply two specific duties encompassed within the organizing principle of good faith, namely the duty of honest performance and the duty to exercise contractual discretion in good faith.

Parties to construction contracts should be mindful of the representations they make to their counterparties, and should be cautious not to “knowingly mislead” counterparties in breach of their duty of honest performance, which may in some circumstances include silence or failing to correct a counterparty’s mistaken beliefs. Additionally, where a construction contract confers discretionary powers, the parties should be sure to clarify the purposes for which that discretion is granted, and ensure that it is exercised reasonably.


Supreme Court Invalidates Subcontractor Partial Price Forfeiture Clause

In Chandos Construction Ltd. v. Deloitte Restructuring Inc., 2020 SCC 25 (“Chandos”), the Supreme Court of Canada (the “Supreme Court”) determined that a contractual provision requiring a subcontractor to forfeit 10 percent of the subcontract price to the general contractor upon the insolvency or bankruptcy of the subcontractor was invalid for being contrary to the “anti-deprivation rule”.

Background

Chandos Construction Ltd. (“Chandos Construction”) was a general contractor on a project (the “Project”). It subcontracted part of the Project to Capital Steel Inc. (“Capital Steel”). One clause of the subcontract required Capital Steel to forfeit 10 percent of the subcontract price as a fee for the inconvenience, or for monitoring the work, in the event that Capital Steel became insolvent or bankrupt (the “Insolvency Clause”).

Capital Steel filed an assignment in bankruptcy prior to completing the subcontract. Chandos Construction argued that it was entitled to rely on the Insolvency Clause to reduce the debt that it otherwise owed to Capital Steel. This effectively resulted in a credit due to Chandos Construction from the bankrupt Capital Steel. Given that the application of the Insolvency Clause would create a claim provable in bankruptcy in favour of Chandos Construction, the trustee in bankruptcy sought advice and direction from the courts.

Application Judge & Court of Appeal

Although the application judge found the Insolvency Clause to be a valid liquidated damages clause, the Alberta Court of Appeal (the “Court of Appeal”) reversed the decision and held that the Insolvency Clause was invalid because it violated the “anti-deprivation rule”.

The anti-deprivation rule is a common law principle that is meant to protect the value of a bankrupt’s estate upon bankruptcy by voiding any contractual provision that would remove value from the estate upon bankruptcy.

The Court of Appeal found that the anti-deprivation rule remained part of the common law of Canada and had not been ousted by either judicial precedent or statutory amendment. The Court of Appeal applied the anti-deprivation rule to the Insolvency Clause, determined that the Insolvency Clause was triggered upon Capital Steel’s insolvency, and found that giving effect to it would remove value from Capital Steel’s estate to the prejudice of its creditors. Therefore, the Court of Appeal held that the Insolvency Clause was invalid.

Chandos Construction appealed the Court of Appeal’s decision to the Supreme Court.

Supreme Court of Canada

The Supreme Court, in an 8-1 decision, upheld the Court of Appeal’s decision.

The Supreme Court noted that the anti-deprivation rule has existed in Canadian common law even prior to federal bankruptcy legislation, and that the rule has never been eliminated by any court decision or by the Parliament of Canada.

The Supreme Court recognized that certain sections of theBankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 had been enacted to invalidate contractual provisions triggered by insolvency in both commercial and consumer restructurings. However, the Supreme Court held that these provisions were directed at protecting insolvent or bankrupt persons, but did not eliminate the anti-deprivation rule, which is directed at protecting creditors.

The Supreme Court affirmed that the two part test for the anti-deprivation rule is effects-based, not intent-based, and is as follows:

  1. Is the clause triggered by an event of insolvency or bankruptcy?; and
  2. If so, does it remove value from the insolvent’s estate?

If the two questions are answered in the affirmative, which was the case here, then the clause in question violates the anti-deprivation rule.

The lone dissenting judge would have upheld the Insolvency Clause on the basis that it had a legitimate commercial purpose. However, the majority was of the opinion that such a ruling would create greater difficulties in the efficient administration of corporate bankruptcies by requiring courts to assess intention after the fact, and could result in an increase in the use of similar clauses to try and create priorities for certain creditors.

Takeaways

Parties to a construction contract should consider whether the language of any clause that purports to enforce a financial penalty upon the insolvency or bankruptcy of the other contracting party may violate the anti-deprivation rule, and if so, whether appropriate modifications can be made.


Court Uses Summary Judgment to Determine Scope of Cost Savings Provision

In Dominus Construction Corporation v. H & W Development Corp., 2020 ONSC 8134, the Ontario Superior Court of Justice (the “Court”), used summary judgment in an attempt to resolve a construction lien dispute regarding the scope of the costs savings provision in a construction contract.

Background

H&W Development Corp. (“H&W”) was the owner and developer of a residential condominium complex (the “Project”). It contracted with Dominus Construction Corporation (“Dominus”), which was to provide H&W construction management services for the Project (the “Contract”).

Part of Dominus’ fee for services included a share of any cost savings realized on the Project (the “Cost Savings”), which it was to divide equally with H&W. “Cost Savings” was defined as the difference between the Projected Workable Budget (“PWB”), as defined in the Contract, and the actual total cost of the Project.

After performing its services, Dominus invoiced H&W for approximately $7.5 million, which Dominus had calculated as its 50% share of the Cost Savings. Conversely, H&W maintained that no Cost Savings were achieved, and in fact claimed that Dominus owed it money. Dominus registered a lien claim and brought an action against H&W. H&W defended the action and brought a counterclaim against Dominus. The dispute at the centre of the case hinged on which party’s interpretation of the Cost Savings provision prevailed.

H&W posted security with the Court, thereby vacating Dominus’ lien claim. H&W thereafter brought a motion to discharge Dominus’ lien claim on the basis that the Cost Savings were not lienable. The Court dismissed that motion and held that the Cost Savings were lienable. This decision was covered in our Spring 2020 Newsletter.

Dominus subsequently brought a motion for summary judgment for its share of the Costs Savings realized on the Project, which is the subject of this article.

Summary Judgment

Issues

On the return of the motion, the Court was asked to interpret two central aspects of the Contract:

  1. What was the Project’s Gross Liveable Area (“GLA”)?; and
  1. What process did the Contract provide for determining actual total cost?

The answer to these two questions would, in turn, determine the Projected Workable Budget (“PWB”), which in turn, would determine whether Cost Savings were achieved.

Test

A Plaintiff can move for summary judgment on all or part of its claim, which must be granted if the Court is satisfied that there is no genuine issue for trial. If there is a genuine issue requiring a trial, then, using the expanded fact-finding powers to weigh evidence, evaluate credibility, and draw reasonable inferences from the evidence, the judge must determine whether the need for a trial can be avoided.

Affidavit Challenge

In support of the summary judgment motion, Dominus relied on the affidavit of its President at the time the Contract was entered into (the “Affidavit”). H&W took issue with the Affidavit and sought to have portions of it struck because it contradicted evidence the Affiant had given during a previous cross-examination. H&W stated that it did not cross-examine the Affiant on the Affidavit because it did not want to provide the Affiant an opportunity to cover up holes in his evidence. The Court refused to strike portions of the Affidavit and held that H&W had to live with the consequences of its strategic choice. As such, the Court held that it was entitled to rely on the information contained therein.

The Court ultimately determined that there was no genuine issue requiring a trial, and granted Dominus’ motion for summary judgment, as outlined below.

Issue 1: Gross Liveable Area

The Contract did not define the GLA, but it is referenced in the definition of PWB. The Court noted that when the Contract was entered into, it was impossible to know the final GLA, but that a 775,977 square foot estimate was taken based on a project budget and 50 percent of the Project drawings.

Dominus argued that the appropriate figure was the estimated number the parties agreed to adopt, which was then used to calculate the PWB, and that the Contract did not have a method for revising this number. H&W argued that the inclusion of the word “estimate” in the definition of the PWB meant that the parties anticipated the figure would be revised.

The Court held that the GLA could only mean the GLA of the completed Project, which had been calculated at 768,248 square feet by H&W’s quantity surveyor based on as-built drawings. It therefore concluded that the PWB was $134,443,400 ($175 per square foot) rather than $135,754,475.

Issue 2: Determining Actual Total Cost

Like GLA, actual total cost was not defined in the Contract. However, under the Contract Dominus was solely in charge of the trade contractors, including arranging the contracts between them and H&W, which Dominus argued was necessary for it to ensure the tracking of construction costs.

Despite this, Dominus argued that a number of construction invoices that H&W was seeking to include in the Cost Savings calculation was for work that Dominus was either unaware of, did not negotiate, or which occurred after Dominus was off-site. As such, Dominus argued that H&W was trying to increase construction costs in order to eliminate or reduce the Cost Savings. Conversely, H&W argued that Dominus was trying to “read into” the Contract a requirement that only trades managed by Dominus were to be included in actual total cost.

The Court noted, in interpreting contracts, the overriding concern “is to determine the intent of the parties and the scope of their understanding”. The Court found that the Contract was one negotiated by sophisticated parties (even though it involved a standard form contract), particularly in light of the fact that there was a cost savings provision, which suggests it must have been negotiated.

The Court determined that the words of the Contract were “clear and unambiguous, and can only be interpreted one way”. It defines the Project “to mean the total construction and related services to be managed under this Contract of which the Work is a part”. “Work” is defined as that portion of the Project performed by either a trade contractor or by the construction manager’s own forces. The Court agreed with Dominus that the inclusion of the construction services managed by H&W in the actual total cost renders the cost savings provision meaningless to Dominus. The Court thus found only those construction costs managed by Dominus were to be included in calculating the actual total cost. It further held that while that figure required further calculation, it was somewhere between $122 and $130 million.

Reference

The Court noted that the parties agreed that construction costs of at least around $120 million were incurred, but that further assistance was required to determine whether certain additional contested invoices should be included in total construction costs. The Court ordered a reference with respect to the contested invoices, and suggested that an accountant or mediator with experience in construction law, or a Certified Specialist in Construction Law, act as referee.

Takeaways

As this case demonstrates, summary judgment can be a useful and effective means of substantially advancing an action where it allows the Court to resolve a key and discreet issue at the heart of a case. That said, the Court’s decision is currently under appeal, so it remains to be seen whether the Court’s determination will be upheld.


Significant Updates to CCDC 2 Stipulated Price Contract

The Canadian Construction Documents Committee (“CCDC”) has recently modified its standard form CCDC 2 Stipulated Price Contract (hereinafter “CCDC 2 (2020)”). This is the first update since 2008, and incorporates the prompt payment and adjudication changes under Ontario’s Construction Act, R.S.O. 1990, c. C.30 (the “Construction Act”). Some other changes are meant to reflect modern trends in the execution of construction projects. This article summarizes the key changes found in CCDC 2 (2020).

Payment Terms and Holdback Release

The updated payment terms are set out below and are discussed in the context of Ontario’s Construction Act:

Section

Subject

Provision

Definitions

Payment Legislation

The term "Payment Legislation" has been added. It means “legislation in effect at the Place of the Work which governs payment under construction contracts". In Ontario, this refers to the payment regime under the Construction Act.

GC 5.2.1

GC 5.2.6

Applications for Payment

Contractor applications for any payment must be submitted to the Owner and the Consultant at the same time, and must comply with the requirements of a "proper invoice”, as set out in the Construction Act.

GC 5.2.7

GC 10.4.1

Workers Compensation Compliance

With all applications for payments, the Contractor must provide evidence of compliance with workers' compensation legislation.

GC 5.2.7

Statutory Declarations

With all applications for payment subsequent to the first payment, the Contractor must provide a Statutory Declaration using document CCDC 9A, regarding its having distributed the amounts previously received.

GC 5.3.1.1

Notice of Non-payment 

The Consultant will issue to the Owner and copy to the Contractor, no later than 10 calendar days after the receipt of the application for payment, a certificate for payment in the amount applied for, or in another amount the Consultant determines to be due. 

If the Consultant certifies a different amount, or rejects the application in whole or in part, the Owner must promptly issue a written notice to the Contractor with reasons for the revision or rejection.

GC 5.3.1.2

GC 5.5.4

Payment to Contractor

The Owner must pay the Contractor on the 28th day after receipt of the payment application. Final payment must still be paid within 5 days after the final certificate for payment is issued.

GC 5.4.3

Payment of Holdback

The Owner must pay the statutory holdback no later than 10 working days after the lien period expires. However, this is subject to the requirements of any Payment Legislation, which in Ontario requires payment of the holdback on the day after the lien period expires.

Adjudication

The new Adjudication procedure set out in the Construction Act is referred to throughout CCDC 2 (2020), including a new section under GC 8.2. It also clarifies that Adjudication is a separate avenue for dispute resolution, and does not affect, and is not affected by, other alternative dispute resolution processes such as mediation or arbitration.

Ready-for-Takeover and Early Occupancy

CCDC 2 (2020) introduces a new section, Part 12 – OWNER TAKEOVER, as well as the new concept of "Ready-for-Takeover". "Ready-for-Takeover" refers to the Substantial Performance of the Work. As per GC 12.1, in order to attain Ready-for-Takeover, the following prerequisites must be obtained:

  1. The Consultant has certified or verified the Substantial Performance of the Work;
  2. Evidence of compliance with the requirements for occupancy or occupancy permit as prescribed by the authorities having jurisdiction;
  3. Final cleaning and waste removal at the time of applying for Ready-for-Takeover, as required by the Contract Documents;
  4. The delivery to the Owner of such operations and maintenance documents reasonably necessary for immediate operation and maintenance, as required by the Contract Documents;
  5. Make available a copy of the as-built drawings completed to date on site;
  6. Startup, testing required for immediate occupancy, as required by the Contract Documents;
  7. Ability to secure access to the Work has been provided to the Owner, if required by the Contract Documents; and
  8. Demonstration and training, as required by the Contract Documents, is scheduled by the Contractor acting reasonably.

If the completion of items 3 to 6 are delayed because of conditions reasonably beyond the control of the Contractor, or by agreement between the Owner and the Contractor to do so, Ready-for-Takeover shall not be delayed.

Pursuant to GC 12.1.3, when the Contractor considers the Work to be Ready-for-Takeover, it must deliver to the Consultant and the Owner a list of items to be completed or corrected, together with a written application for Ready-for-Takeover for review. 

Pursuant to GC 12.1.4, the Consultant is required to review the Work to verify the validity of the application, and must, 10 calendar days after receipt of the application and list, either confirm the date of Ready-for-Takeover, or advise that the Work is not Ready-for-Takeover and why.

Pursuant to GC 12.2, CCDC 2 (2020) also provides for early occupancy of all or part of the Work before achieving Ready-for-Takeover, but this can occur only if the Contractor, acting reasonably, agrees, and the relevant authorities provide prior approval.

In the event the Owner takes occupancy of the Work, in whole or in part, the part that is occupied is deemed to have achieved Ready-for-Takeover commencing from the date of occupation. In addition, responsibility for the care of the occupied area is passed to the Owner and the warranty period for the occupied parts begins. If the Owner occupies the entirety of the Work prior to it being Ready-for-Takeover, the Contractor is still responsible for timely completion of the Work.

Responsibility for Health & Safety

CCDC 2 (2020) removes the old GC 3.2.2.2, with the result that the Contractor is responsible for overall health and safety on the Project even where the Owner brings other contractors onto the project. However, as per GC 9.4, both the Owner and the Contractor are responsible for compliance with health and safety regulations. In addition, the Owner is now also responsible for ensuring the Consultant, other Contractors, and the Owner’s own forces comply with all health and safety precautions and programs established by the Contractor.

Note that CCDC 2 (2020) does not assign the “Constructor” responsible for health and safety within the meaning of the Occupational Health and Safety Act, R.S.O. 1990, c. O.1. As such, Owners and Contractors should consider specifically assigning this role to avoid uncertainty.

Valuation of Change Directives

GC 6.3 updates the costs to be considered in connection with valuation of a change directive. Costs for a change directive can only be charged if they contribute directly to the change directive being implemented, and include the following:

  • Wages of office personnel engaged in a technical capacity;
  • In the absence of agreed rates, cost less salvage value of Construction Equipment, Temporary Work and tools, exclusive of hand tools under $1,000 owned by the Contractor;
  • Rental cost of Construction Equipment, Temporary Work and tools, exclusive of hand tools under $1,000;
  • Deposits lost provided that they are not caused by negligent acts or omissions of the Contractor;
  • Losses and expenses by the Contractor for matters which are the subject of insurance under the policies required by GC 11.1 [INSURANCE], but that are not recoverable because they are in excess of collectible amounts or within the deductible amounts;
  • Legal costs in relation to the performance of the Work, provided that these costs do not relate to a dispute between the Owner and the Contractor, the negligent acts or omissions of the Contractor, or the Contractor’s breach of contract;
  • Cost of auditing when requested by the Owner; and
  • Cost of Project specific information technology in accordance with the method determined by the parties.

Contractors are no longer permitted to charge for:

  • Wages of personnel engaged in review of shop drawings, fabrication drawings and coordination drawings; and
  • Wages of personnel engaged in processing changes of the Work.

Cash Allowances

Pursuant to GC 4.1, where the actual cost of the Work under any cash allowance exceeds the amount of the allowance, then any unexpended amounts from other cash allowances can, at the Consultant’s direction, be reallocated to cover the shortfall. However, in this case, no additional amounts are to be added to the Contract Price for overhead and profit.

Where the actual cost of the Work under all cash allowances exceeds the total amount of all cash allowances, the Contractor is to be compensated for the excess incurred as well as an amount for overhead and profit on the excess only.

Conversely, the net amount of any unexpended cash allowances, after considering any applicable reallocations, are required to be deducted from the Contract Price by way of Change Order without any adjustment for the Contractor’s overhead and profit.

Delays

As per GC 6.5.2, where there is a delay in the performance of the Work on account of a stop order issued by a court or other public authority, then an extension of time is permitted, but only where the Contractor cannot achieve Ready-for-Takeover by the Contract’s stipulated date. The provisions with respect to Owner-caused delays (GC 6.5.1) and delays outside of Contractor's control (GC 6.5.3) remain unchanged.

Indemnification and Waiver of Claims

As per GC 13.1 and GC 13.2, the timing of indemnification claims and waivers of claims are now tied to the date of Ready-for-Takeover as opposed to the date of Substantial Performance. In addition, the revisions to indemnification limit indemnification to direct claims and expressly exclude liability for “indirect”, “consequential”, “punitive” or “exemplary” damages. Parties should consider whether to clarify the type of damages deemed to be “indirect” or “consequential” in the supplementary conditions. As per GC 13.1.2.3, there is no limit on any kind of third party claims.

Document Review

Pursuant to GC 1.1.4, CCDC 2 (2020) requires the Contractor to report any errors, omissions or inconsistencies discovered by or made known to it to the Consultant, and is not to proceed with the work affected until the Consultant provides the Contractor with corrected or additional information. This is a change from the previous version, wherein the Contractor was required to review the Contract Documents and to promptly report any error, inconsistency or omission. As per GC 1.1.3, it has been clarified that the purpose of review of Contract Documents is for the purpose of facilitating co-ordination and execution of the Work by the Contractor.

Insurance

CCDC has also updated CCDC 41 – Insurance Requirements (“CCDC 41”), which insurance requirements are incorporated by reference into GC 11.1 of CCDC 2 (2020). Among other things, changes to the CCDC 41 has increased the limits for certain required insurance policies, and also include an obligation of a Contractor to obtain pollution liability insurance. These provisions should be reviewed in order to determine if additional or other insurance requirements are required for the project at issue.

Significant Deletions and Streamlined Provisions

A number of provisions in CCDC 2 (2020) have been deleted and/or streamlined, including the following:

Section

Subject

Provision

Article A-6

Facsimiles

Facsimile as a delivery method for notices in writing has been removed.

GC 1.1.2

Review of Contract Documents

As noted above, the requirement for the Contractor to review Contract Documents has been revised to clarify that such review is only for the purpose of facilitating coordination of the Work. 

old GC 3.9

Contract Documents at the Site

The requirement to keep Contract Documents, submittals, reports, and records of meetings at the Site has been removed. Note that the as-built drawings are a required item for “Ready-for-Takeover”.

GC 3.8

Shop Drawings

Provisions for shop drawings have been simplified, and while certain subsections have been deleted, the changes are not substantive

old GC 3.11

Use of Work

The provision, requiring that the use of the Work be in accordance with applicable law and not encumber the site has been deleted in its entirety. 

old GC 3.12

Cutting and Remedial Work

The requirement for the Contractor to perform cutting and remedial work has been deleted, but the cost for cutting and remedial work caused by ill-timed work by the Contractor continues to be valued in accordance with GC 6.

old GC 3.13

Cleanup

While the provision regarding the clean up of the site has been deleted, the Contractor is required to perform final cleaning and waste removal (under GC 12.1) before applying for Ready-for-Takeover. 

old GC 11.2

Contract Security

The requirement that the Contractor provide contract security in the Contract Documents has been deleted.


Takeaways

As set out above, there have been a number of significant changes to CCDC 2, many of which go beyond merely incorporating the amendments to the Construction Act. In addition to the update to CCDC 2, it is expected that CCDC will update its other standard form contracts.

Many parties that habitually use CCDC contracts have developed customized amendments and supplementary conditions to modify the standard form terms. As such, in the event that parties wish to use the updated CCDC 2 (2020), any existing customized amendments and/or supplementary conditions they may have will need to be reviewed and modified in order to address the updated definitions, concepts, and section references, as well as to alter any substantive provisions as may be required.