CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
associated with changes or unexpected conditions. Should the owner enter into separate contracts with the designer and the general contractor, the owner will assume the risk associated with co-ordination and conflict issues arising between those counterparties. Owner and Multiple Contractors The owner enters into separate contracts with differ - ent contractors for each portion of the work to be completed. This assigns the risk evenly among the contractors and creates a direct contractual relation - ship with each of them. The responsibility and risk associated with co-ordination and conflicts remains with the owner. Accordingly, an owner may engage a construction manager to enter into direct contracts with the contractors on the owner’s behalf to help to manage or reallocate such risks. 7.3 Management of Construction Risk Generally, construction risks are managed through the construction contract, by way of indemnities, war - ranties, retentions, liquidated damages, termination rights, exclusions, limitations and waivers of liability, force majeure and insurance requirements. Risk may also be managed using bonds, letters of credit or guarantees. Any risk mitigation devices are subject to negotiation between the parties, and principles of common law (including relating to the enforceability of penalties – see 7.4 Management of Schedule-Related Risk ). 7.4 Management of Schedule-Related Risk Responsibility Schedule-related risks are generally managed through the contract, which will stipulate which party bears responsibility for different types of schedule impacts and delays. Compensation The parties may incorporate liquidated damage provi - sions such that an owner is entitled to compensation or set-off rights if certain milestone and completion dates are not achieved, subject generally to force majeure and owner-caused delays. The amount of the compensation must represent a genuine pre-estimate of the actual cost or loss to the owner attributable to such delay and not a penalty to the contractor,
as Canadian law limits the enforcement of penalty clauses. Incentives and Bonuses Payment incentives and early-completion bonuses are also common features of construction contracts. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance While ultimately dependent on the nature and scope of the applicable construction project, as well as the parties involved, it is common for owners to seek addi - tional types of security from a contractor. That security is most commonly in the form of labour, material and performance bonds, and letters of credit, although in some cases an owner may insist on some form of corporate guarantee. 7.6 Liens or Encumbrances in the Event of Non-Payment Each of the Canadian provinces gives statutory con - struction, builders’ or mechanics’ lien rights to those providing work, materials and/or services supplied to a construction project. The applicable legislation sets out the applicable rights and procedures. Generally, construction liens are registered against the project lands, with owners having the ability to remove the lien in two ways: • by discharging the lien, which requires the lien claimant to deliver and register a release (typically following payment of the amount owing under the lien), or requires the owner to obtain a court order that the lien is invalid (ie, because the lien claimant has failed to meet the prescribed time periods for preserving and/or perfecting the lien); or • by vacating the lien, which requires the owner (or the general contractor on their behalf) to pay, or to provide a bond or letter of credit for, the full amount of the claim for the lien (plus, in some provinces, an additional prescribed amount) to the court (such monies will stand as security for the claim in lieu of the property and the lien will be removed from the title to the project. Most provincial construction lien statutes protect owners who abide by the hold-back provisions of the statute and retain the specified percentage (usually
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