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Contractual relationships in the construction industry can be complex and costly to negotiate. To avoid these costs and ensure that both parties’ interests are considered, the Canadian Construction Documents Committee (“CCDC”) issues template contracts to govern different types of relationships between various construction parties.
One of the most common contracts from the Canadian Construction Document Committee is the “CCDC 2”, which governs the relationship between an owner and a contractor where the owner establishes a single, pre-determined fixed price, or lump sum, for the project.
Although the intent of the CCDC 2 is to address all potential issues, there are often additional considerations or terms that parties add to the CCDC 2 in an appendix referred to as the supplementary general conditions.
These supplementary general conditions allow parties to customize the CCDC 2 to meet their needs. The benefit is that the industry is familiar with the standard terms of the CCDC 2 and parties only need to review the additional provisions, which greatly reduces the complexity and cost of negotiating.
In December of 2020, the Canadian Construction Document Committee replaced the previous CCDC 2 – 2008 with a revised version, the CCDC 2 – 2020. The new version makes numerous changes to the construction relationship by introducing, among other terms, a ready-for-takeover milestone, early occupancy by the owner, compliance with payment legislation, and new provisions on indemnity and waiver of claims.
As a result of these changes, parties that use supplementary general conditions should consider whether they are consistent with the new CCDC 2 – 2020 and still meet the parties’ needs. Similarly, parties that do not use supplemental general conditions should consider whether the changes to the new CCDC 2 have introduced terms that might require the use of supplemental general conditions.
Five commonly used supplementary general conditions that both owners and contractors should consider addressing are:
1. Contractor Standard of Care
In some cases, owners may wish to articulate a specific standard of performance that it expects contractors to meet. The purpose of these clauses is to increase the required standard of work from that of an ordinary contractor to a contractor with specific skills and knowledge. Owners should consider whether these types of clauses are appropriate and contractors should have these reviewed to ensure they are not held to a higher standard than anticipated.
2. Set-off Rights
In the event of a dispute, owners often want to withhold contractor funds to cover the cost of their own anticipated claim against the contractor, however, neither versions of the CCDC 2 permit a “set-off” of claims. As a result, it is common for owners to insert set-off provisions in the supplementary general conditions. Contractors should be careful about accepting these set-off provisions, which could lead to the non-payment of completed work in response to unproven owner claims. An additional consideration for parties negotiating set-off rights is the new anticipated construction legislation that include strict payment provisions.
3. Construction Liens
CCDC 2 does not include a positive obligation to remove liens registered against the project. Although the new CCDC 2 includes a requirement to demonstrate that subcontractors have been paid, liens may still be filed and owners may find it useful to have language specifying a time period by which liens are to be discharged. Contractors will want to ensure that these time periods are achievable.
4. Indemnification and Waiver
In the event of a dispute, the indemnity and waiver provisions are the most critical terms in the entire contract. As a result, both owners and contractors should carefully review these sections. This is especially true given that the new CCDC 2 – 2020 has modified both clauses by changing the limitation period, imposing new limitations on indemnity obligations, and changing the rules on wavier of claims.
5. Time is of the Essence / Liquidated Damages
It is common for owners to include a “time is of the essence” clause, which makes it clear that the contract time stipulated in the contract is important and delay will be treated as a condition, which allows the owner to terminate the contract and sue for damages. However, these clauses are difficult to enforce and liquidated damages (i.e. a penalty per day of delay) can be a better substitute. Both owners and contractors should consider whether these provisions are required and how they might impact the performance of the work.
These are only a few of the key supplementary general conditions that may be useful to consider for the new CCDC 2 – 2020. Please contact the author or our Construction Team for more information and assistance.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.