Tips for effective administration of a construction contract and for reducing the risk of delay and change orders. Interplay between the contractors, the consultant and an owner.
2. Role of Consultant
Consultant’s role is to administer the contract, i.e., ensure that
the project is completed as per the contract documents
Contract between owner and consultant outlines consultant’s
administration services
Contract between owner and general contractor includes
provisions detailing role of consultant
3. CCDC Contracts
Under CCDC 2 (2008) and CCDC 3 (1998), consultant is to
interpret the requirements of the contract documents
Consultant has authority to make findings re claims for
changes in contract price and contract time
Contractor must submit notice (in writing) of a claim for delay to
the consultant
4. CCDC Contracts (cont’d)
Consultant’s services include:
• Site reviews/site visits to ensure contractor’s work is free from
defects and deficiencies
• Work is in conformance with contract documents, applicable
building codes, bylaws and good construction practice
Pursuant to GC 2.2, the consultant’s findings are final unless
notice of a dispute is provided in writing within 15 days of
receipt of the consultant’s findings.
5. Dual Role of Consultant
The consultant is hired and paid by the owner/developer and has
a duty:
to act impartially and objectively
to act with professional care
to protect the owner (its client) as per its contract
The majority of claims against consultants are allegations of
failure in the administration of the contract.
6. Dual Role of Consultant (cont’d)
Four common factors constitute the primary reasons for claims
against consultants re contract administration (field services):
1. Failure to properly define field service obligations, including
number of site attendances
Courts require the consultant to be at the site at critical times
Consultant should have discretion re what constitutes “critical”
times
Consultant alone should determine when he/she should be at the
site
7. Dual Role of Consultant (cont’d)
2. Consultant becoming involved in dictating contractor’s means,
methods and techniques
• If consultant creates an innovative design for the project, the
consultant may be required to become involved in construction
methods, sequences, etc. (West Coast Paving Co. Ltd. v. British
Columbia (1983) 50 BCLR 234 (SC))
• Consultant might be liable for failure to detect or prevent
breaches of contract which might constitute foreseeable harm to
third parties (Winnipeg Condominium Corp. No. 36 v. Bird
Construction Co., [1995] 1 SCR 85)
8. Dual Role of Consultant (cont’d)
3. Consultant charging for field services on a fixed price or
percentage of the cost of the work, rather than hourly or per
diem
• Often not possible to determine accurate amount of time to
provide field services
• Fixed fees may lead to an increased likelihood of field service
errors and resulting claims
• Ideal practice is for field services to be performed on an hourly or
per diem basis
9. Dual Role of Consultant (cont’d)
4. Delay in preparation of a list of defects and deficiencies may
lead to a claim for negligent administration
• Waiting until the end or close to the end of the project to identify
and quantify construction defects and deficiencies is very risky:
» it is possible that the value of the defects and deficiencies, once
determined, will be beyond the value of the funds remaining in the
hands of the owner
» the owner will have lost the strategic advantage of deducting the
value of the defects and deficiencies from the monthly progress
payments, thereby removing the motivation for the contractor to
complete and correct the defects and deficiencies promptly.
10. Delay Claims and Change Orders
Finishing a project on time and within budget remains one of
the most difficult goals to accomplish.
Tips for achieving this goal:
• requiring consultant to prepare a monthly report based upon the
work performed by the contractor during that month
• requiring the contractor to submit an as-built schedule every
month before the consultant issues the certificate for payment, as
well as before releasing the final payment on the project
11. Delay Claims and Change Orders (cont’d)
• requiring the contractor to provide a total assessment of the time
and cost implications of change orders within a set period of time
(e.g., this could range from 1 to 6 months, depending on the type
and magnitude of the project)
• consider using a performance incentive program to reward the
contractor for completing the project on time and on budget
12. Construction Bonds
One method of managing risks
Most common bond instruments include:
• Bid bonds
• Performance bonds
• Labour and material bonds
• Lien bonds
13. Bid Bonds
Refusal by the chosen contractor to enter into a construction
contract with the owner:
• Owner can seek compensation under the bid bond for the
difference between the tender price of the defaulting chosen
contractor and the contract price between the owner and the other
party the owner hires, up to the face value of the bid bond.
14. Performance Bonds
Involves an agreement between 3 parties: the surety, the
contractor and the owner, and guarantees the owner that the
contractor will complete the contract in accordance with its
terms. If the contractor defaults, the owner may claim under
the bond requiring the surety to complete the contractor’s
obligations.
An owner should be careful when faced with a defaulting
contractor to ensure that the terms of the performance bond do
not relieve the surety from its obligations if the owner
terminates the contractor.
15. Labour and Material Bonds
Guarantee payment to subcontractors (claimants) in the event
the bonded principal does not make payments as required.
Main benefit - provides subcontractors and suppliers with
security of amounts owed to them leading to a lower likelihood
of liens being filed.
Do not prohibit an unpaid supplier or contractor from filing a
lien claim, but reduce the odds of a lien claim actually being
filed and/or pursued.
16. Labour and Material Bonds (cont’d)
Subcontractor must establish:
• that it has a direct contract with the principal for labour or material
or both; and
• that the labour or material or both is/are used or reasonably
required for use in the performance of the contract between the
principal and the obligee (Campbell Comeau Engineering Ltd. v.
Alta Surety Co. (1996), 30 CLR (2d) 116 (NSSC)).
17. Lien Bonds
Under the BC Builders Lien Act and similar statutes in other
provinces, an owner or contractor is entitled to apply for the
discharge of a lien upon the substitution of another appropriate
form of security.
Lien bonds can be used to provide security in place of cash or
a letter of credit. The lien bond will be in an amount equivalent
to the amount of the lien and, upon posting the bond with the
court, any liens covered by the bond can be discharged from
title to the owner’s property and the lien bond then stands as
security for the lien.
