CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
7.3 Management of Construction Risk Generally, construction risks are managed through the construction contract, by way of indemnities, warranties, retentions, liquidated damages, termination rights, exclusions, limita - tions and waivers of liability, force majeure and insurance requirements. Risk may also be man - aged using bonds, letters of credit or guaran - tees. Any risk mitigation devices are subject to nego - tiation between the parties, and principles of common law (including relating to the enforce - ability 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 provisions such that an owner is entitled to com - pensation 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 construc - tion 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 additional 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 cor - porate guarantee. 7.6 Liens or Encumbrances in the Event of Non-Payment Each of the Canadian provinces gives statu - tory construction, 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 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 pro - tect owners who abide by the hold-back pro -
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