Contracts and insurance

Construction contracts

What standard contract forms are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

Standard contract forms are widely used in Ontario on a variety of construction projects. The Canadian Construction Document Committee (CCDC) Contract Forms are widely used for the construction aspects of projects. The Stipulated Price Contract is the most common standard form contract used for most projects in Ontario. The CCDC also has a series of subcontract forms that are regularly employed. Alternatively, the Canadian Construction Association also offers a series of standard construction contract forms.

The most commonly used form for the retainer of a prime consultant is the Royal Architectural Institute Contract Form, RAIC 6. Where an engineer is the prime consultant, the contracting forms of the Association of Consulting Engineers of Canada are adopted, most notably, form ACEC 2.

Payment methods

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

The typical method and timing of payment for construction work is by way of submission of regular progress claims during the course of the project, which are often contractually due and owing 30 to 45 days after submission. The payment mechanism is usually triggered by certification by the registered professional with jurisdiction over the project.

In Ontario, prompt payment provisions under the Construction Act require invoices to be provided to the owner on a monthly basis, unless the contract provides otherwise. Under this legislation, the owner must then pay the contractor within 28 calendar days of receiving the invoice, subject to the owner's right of delivering a notice of non-payment.

Contractual matrix of international projects

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants?

Construction projects involve multiple parties (owners, designers, general contractors, subcontractors, labourers and suppliers) and can take on a variety of structures. Design–build structures are commonly used, for example, in the industrial sector or on repetitive residential or commercial projects.

On larger public projects (eg, hospitals, tunnels, bridges and highways), the public–private partnership model is sometimes employed. This is known as the P3 model in British Columbia and the alternative financing and procurement model in Ontario. These projects are usually subject to overview by a provincial body (Partnerships BC in British Columbia and Infrastructure Ontario in Ontario), which are entities that comprise various skilled professionals familiar with project development, design and construction.

PPP and PFI

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

Where government entities are involved as project sponsors or owners, the project is usually subject to a dense and comprehensive contractual arrangement between the public entity and the other project participants.

On most public–private partnership projects the provincial government has developed a very detailed standard format for public projects, particularly infrastructure projects. The form is amended in some significant ways from project to project to meet individual conditions and requirements.

Specialised federal and provincial government agencies promote and oversee the use of P3 projects; for example, Infrastructure Ontario in Ontario and Partnerships BC in British Columbia.

Joint ventures

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

Liability and responsibility may be allocated among parties based on their private contracting arrangements, which assign both risks and rewards between the partners for the duration of the project.

Tort claims and indemnity

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

Under common law applicable in both British Columbia and Ontario, parties are free to limit their liability in any way they see fit. There is no statutory prohibition to defining the limit of liability in contracts.

Liability to third parties

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity?

Under Canadian common law, the doctrine of privity of contract prevents third parties from bringing a claim under a contract to which it is not party. Therefore, third parties cannot rely on breach of a construction contract as the basis for a claim against a contractor. However, contractors may still be liable to third parties in tort.

Insurance

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards. Does the local law limit contractors’ liability for damages?

Insurance is often a key source of any recovery that is going to be made for negligence on a construction project. Contractors are afforded a wide range of insurance coverage options, including professional liability insurance for consultants, general liability insurance for the builders and trades, course of construction insurance for any physical damage to property during construction and pollution liability insurance for various environmental hazards.

It is important to obtain the advice of a skilled insurance broker on each project concerning the nature and extent of the insurance coverage necessary for each project to ensure that contractors have an informed and reasonable insurance programme.

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16 June 2020