Commercial - Construction Credit Solutions
Under the new Act bonding for public contracts which exceed a certain dollar amount will require a performance bond and a labour and material bond regardless of any other forms of security being provided. The minimum coverage amount required listed under the regulations is 50% of the contract price if the contract is $100 million or less, or $50 million if the contract prices is more than $100 million.
Maintenance work performed to prevent normal deterioration of the original work performed does not constitute an improvement under the Act, as such the definition of improvement has been amended to mean any capital repair to the land instead of any repair to the land and a detailed explanation of what is meant by capital repair will be added.
The meaning of “price” under the Act will be amended to include any direct costs incurred as a result of an extension of the duration of the work performed, i.e. delay, not caused by the general contractor or subcontractor. A direct costs explanation will also be added to specify that these costs will include insurance, surety bond premiums and costs resulting from seasonal conditions which would not have been incurred if it were not for the delay.
The Construction Act has been amended to provide municipalities with the same protection as the Crown government for their interests in lands they own; a lien will not attach to the interest on a premise of either the Crown or a municipality.
Pursuant to the “grandfathering” provision in the Construction Act, namely Section 87.3, the above changes will not apply to a project improvement where:
A) the contract between the owner and contractor for the improvement was entered into prior to July 1, 2018, regardless of when any subcontract is entered into;
B) the procurement process for the project improvement was commenced prior to July 1, 2018, including any requests for qualifications, requests for proposals or a call for tenders;
C) the project premises is subject to a leasehold interest and the lease was first entered into before July 1, 2018.
Any such improvements will continue to be governed by the terms of the Construction Lien Act as it existed prior to July 1, 2018.
The next significant change to the Act will come into play October 1, 2019. There will be several changes to the Act but the two substantial changes will be the introduction of Prompt Payment and a mandatory Adjudication process for certain types of disputes.
DECEMBER 11, 2018
JULY 1, 2018 CHANGES ARE NOW IN EFFECT
article by Stewart Valentine, Staff Writer
The Construction Lien Act will now be known as the “Construction Act”. So going forward you will want to make sure you use the correct name when referencing a section of the legislation.
Any contracts containing more than one improvement, provided the improvements are to lands that are not contiguous, the companies entering into the contract will be able by contract to deem each improvement to to be under a separate contract for the purposes of the Act.
The monetary thresholds for the posting of costs upon the vacating of a lien, substantial performance, and completion will all be increased.
A contract will be considered substantially performed when the improvement is ready for its use, or is being used for its intended purpose, and if the estimated completion costs are no more than 3 percent of the first $1,000,000 of the contract price, 2 percent of the next $1,000,000 of the contract price, and 1 percent of the balance. Previously the monetary thresholds were $500,000 which have now been increased to $1,000,000 thresholds.
A contract will now be deemed to have been completed when the price of completion, correction of any known deficiencies or the last supply is not more than the lesser of 1 percent of the contract price and $5,000.00. The $5,000.00 threshold has been increased from the previous $1,000.00 threshold.
In support of vacating a lien the maximum amount required for security for costs will increase from $50,000.00 to $250,000.00.
Parties to a contract will now be able to contractually agree to allow the mandatory holdback to be maintained in the form of a letter of credit or demand-worded holdback repayment bond instead of in the form of funds.
Holdback release will now be impacted due to a few changes to the Construction Act.
The payer of the holdback will now be obligated to release payment of the holdback funds provided all liens have expired, discharged or deemed satisfied under the Act. This mandatory obligation will be subject to an owner’s right to publish a notice of non-payment within 40 days after publication of the certificate of substantial performance. Contractors and subcontractors will not be obligated to release holdback funds following the expiry of the lien period if they have not been paid their holdbacks. Non-payment of holdback concerns can be sent to adjudication, provided a notice of non-payment has been declared to their payees.
Annual or phased release of holdbacks pertaining to projects with a timeline longer than one year or phased projects the parties to the contract will be able to agree to allow the release of the holdback on an annual basis or on the completion of specific phases. In order to make use of the annual or phased release of holdback the contract price must exceed the current draft regulations amount which is currently set at $20,000,000.00.
The time to preserve a construction lien will be extended from 45 to 60 days from the applicable start of events for the expiry of liens. The list of events may include completion and abandonment of contracts and subcontracts,as well as contract and subcontract termination which is now included in the Act. The timeline to perfect a lien will also be extended from 45 to 90 days after the last date which a lien could have been preserved. What remains unchanged is the two year expiry period for perfected liens.
Under the Act there will be more stringent accounting practises. Owners, contractors and subcontractors will have to ensure rigorous accounting is in place for each of their projects. Owners, contractors and subcontractors will have to have a bank account in their own names and maintain written records of funds received and paid out of the account which pertain the specific project. Comingling of funds in a single bank account will be permitted so long as written records show the amounts received into and paid out of the account for each project.
Special purpose entities, commonly known as “Project Co”, which typically design, build, finance, and maintain construction projects more commonly known as a P3 project, will be deemed to be owners under the Act in place of the authority or public sector organization. Holdback obligations and substantial performance will accordingly be calculated on the basis of the contract between Project Co and the general contractor.
Daily Construction News
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