The Failure to TAILOR CCDC Contracts May Result in Difficulties – Including an Uncomfortable LawSUIT
By: Jack G. Kent and Todd A. Shipley (partners with Reynolds Mirth Richards & Farmer LLP)
Building remediation and repair is often a source of emotional and financial stress for condominium boards and unit owners. Unfortunately, like death and taxes, it is a certainty that all buildings will eventually require significant repair and maintenance and condominium boards have a legal duty to ensure that such occurs within a reasonable period of time. The good news is that investing in a proper construction contract can decrease financial and litigation risk, help to avoid unnecessary costs and delays and protect the interests of the condominium corporation and unit owners.
Although the construction contracts prepared by the Canadian Construction Document Committee (referred to as the “CCDC”) are a reasonable starting point for most projects, condominium boards should not assume that CCDC contracts do not need to be reviewed to determine if modifications are necessary – they do! Modifications to a CCDC contract are generally referred to as supplementary conditions. This article will provide an overview of CCDC contracts and discuss key supplementary conditions that should be considered by condominium boards before entering into any CCDC project.
For those condominiums who have used supplementary conditions on prior projects, some of the CCDC contracts have recently been modified and a review of your supplementary conditions is recommended to ensure that they are still consistent with your expectations.
What are CCDC Contracts?
To assist the public with access to balanced construction contracts, the construction industry created a national joint committee responsible for the development, production, and review of standard construction contracts. This committee is called the CCDC and it consists of various industry representatives including public owners, consultants, contractors, architects, and lawyers. While not everyone agrees that the contracts are entirely neutral, there is no doubt that they are more balanced than many contracts that are drafted on behalf of any particular stakeholder.
The CCDC has created a number of standard form contracts for use in different project delivery models. The two most commonly used contracts for condominium owners are the CCDC 2 (Stipulated Price Contract) and the CCDC 5B (Construction Management Contract – for Services and Construction).
CCDC 2 is a contract between the owner and contractor to perform the required work for a predetermined fixed price and schedule. The work is based on a design provided by the owner. As a result, the CCDC 2 provides cost certainty for the owner and cost risk for the contractor. However, the owner bears the design risk. This contract is one of the CCDC documents that was recently modified and condominium owners will need to have any prior supplementary conditions reviewed for compliance with the new contract documents.
CCDC 5B is a contract between the owner and the construction manager for: (1) advisory services during the pre-construction phase (design development, cost estimates, procurement), (2) construction services (performance of the work), and (3) post-construction services (occupancy review and warranty work). This type of contract is useful for owners who require assistance planning the project, managing costs and ensuring the project is completed successfully. The owner pays for the actual cost of the work plus a percentage or fixed fee. However, the contract gives the parties the option to change the financial arrangement and convert the contract to a fixed price or to guarantee a maximum price for the work. Since the construction manager enters into contracts with subcontractors for the work, the construction manager bears the risk of performance, schedule and warranty work. The owner, at least initially, will bear the risk of costs as there is no limit on the costs to perform the work.
It is important to note that the CCDC contracts are protected by copyright. Prior to using any CCDC contracts, the parties must purchase a seal from CCDC for a nominal cost. This seal is affixed to the front page of the contract as evidence that the parties have paid for the use of the document. Law firms that provide services to the construction industry can obtain access to the CCDC documents and seals.
Supplementary Conditions for Condominium Owners
Although CCDC contracts provide an excellent foundation, they are template agreements intended for use on a diverse set of projects and cannot address every potential scenario. Supplementary conditions can provide a tailored solution that achieves the specific goals of your project and the needs of your condominium. It is good practice to include any supplementary conditions in tender documents because contractors will need to factor any supplementary conditions into their price and some terms may be contentious.
Ten commonly used supplementary conditions that you may consider including are as follows:
1) Prime Contractor under Occupational Health and Safety Legislation: As the CCDC contracts are intended to be used across Canada, the Prime Contractor obligations imposed by the Alberta Occupational Health and Safety Act, R.S.A. 2000, c. O-2 are not addressed. In order to ensure that there is clarity as to who is assuming these obligations, parties will often add a supplementary condition specifically addressing this issue.
2) Tidy Condition of Work: In many cases, construction on condominiums occurs while residents are still living in the building. Owners may want to consider including supplementary terms that address the condition of the area under construction so that the impact on occupants is minimized. This is particularly important when using the new CCDC 2 because the general conditions no longer address the condition of the work site.
3) Directions in writing: The CCDC contracts do not require that all direction be given in writing. This may lead to a scenario where a contractor performs work based on verbal directions and later seeks payment for this work because the contractor believed it was a change to the contract. The owner may disagree that the direction was ever provided or that it constituted a change to the contract. A supplemental condition specifying that all direction must be in writing can remove ambiguity in direction, scope and payment.
4) Access to the Work: The CCDC contracts do not permit general access to the area of work under construction. Although this makes logical sense for many reasons, unit owners and occupants may require access to some portions of the site at certain times or for certain purposes. Supplementary conditions addressing the specific needs of the residents can reduce the inconvenience of the construction.
5) Construction Bonds: The CCDC contracts do not provide for any construction bonds and owners may wish to consider requiring some form of payment security. This could take the form of a labour and material bond, which ensures that subcontractors and suppliers are paid, or a performance bond, which ensures that the work is completed. In both cases, the bonds provide some protection to the owner if the contractor cannot comply with its obligations. An additional benefit is that including bonds may ensure only qualified contractors are able to bid on the project. However, bonds come at a cost.
6) Time is of the Essence / Liquidated Damages: The CCDC contracts do not contain any “time is of the essence” language and, other than the default provisions, do not give the owner much remedy against the contractor for delays caused by the contractor. Similarly, CCDC contracts do not include any provisions for liquidated damages, which is a mechanism that requires the contractor to pay the owner for the late delivery of a project. To encourage contractors to meet their contractually obligated schedule, owners may want to add supplementary conditions dealing with these issues.
7) Concealed / Unknown conditions: During the renovation and repair of condominium buildings, especially older properties, contractors may encounter concealed or unknown conditions, such as asbestos or mold. The presence of these concealed conditions can dramatically increase construction costs because the CCDC contracts provide that where the work is materially different as a result of a concealed condition, the owner is responsible to compensate the contractor for any additional costs. Condominium owners may wish to use supplementary conditions to reallocate this risk to contractors in order to obtain greater cost certainty.
8) Termination for Convenience: The CCDC contracts only permit owners to terminate the contract in specific circumstances (such as contractors becoming bankrupt or performing the work negligently). For a variety of reasons (such as financing concerns or dissatisfaction with the work), a condominium may need the option to terminate a project at its own discretion. Although these types of clauses typically ensure the contractor receives payment in full for all work performed and recovers costs incurred in discontinuing performance of the work, they protect owners from additional claims by the contractor for loss of profits arising from the early termination.
9) The Cost of Reviewing the Work for Payment and Substantial Completion: The term “substantial completion” is a specific term used in construction legislation that certifies a specific amount of work has been completed and when the owner is permitted to release certain funds to the contractor. Although review processes are stipulated both in the CCDC contracts and legislation, CCDC contracts do not address the consultant’s cost to review work for which the contractor is seeking payment or for which the contractor is seeking confirmation that substantial completion is achieved. Since these reviews may be performed multiple times at the discretion of the contractor, owners may wish to include supplementary conditions to ensure that the cost of failed reviews are reimbursed by the contractor.
10) Set-off Rights: In the event of a dispute, owners may want to withhold contract funds to cover the cost of their own anticipated claim against the contractor, however, CCDC contracts do not address this “set-off” of claims. As a result, it is common for owners to insert set-off provisions in the supplementary conditions to ensure they are not required to pay contractors while the claims are being resolved.
In summary, the CCDC contracts are very useful tools for the Canadian construction industry but they may need to be modified with supplementary conditions to meet the specific needs of condominium corporations in Alberta. We recommend condominium owners involve legal counsel early in the process to ensure that they receive the proper advice on the construction contract, including any necessary supplementary conditions.