EFFECTIVE CONTRACT ADMINISTRATIONSeema LalMay, 2014

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

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

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.

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.

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

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)

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

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.

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

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

Construction Bonds

One method of managing risks Most common bond instruments include:

• Bid bonds• Performance bonds• Labour and material bonds• Lien bonds

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.

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.

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.

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)).

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.

SEEMA LAL*

604.408.2026sl@shk.ca