October 29, 2019

It has come to our attention that despite this, some owners have engaged very high priced law firms to advise them on how to get around the rules of the Construction Act. While we have no doubt that these attempts will fail, there is still a risk out there of which we were unaware, and perhaps should have been aware of.

During the long road to success in achieving the new Act, the OGCA, along with others, strongly opposed the exclusion of many owners who thought they should have an exemption from the Act. Many wanted to be exempted from the new rules, Fortunately, the government of the time saw that this wasn’t right and supported the inclusive nature of the new Act.

It appears we missed something. The nuclear industry did achieve an exclusion from the new Act, as stated in the following section. It is clear that those involved in the nuclear industry obtained an exclusion.

O. Reg. 304/18, s. 13:

“Parts I.1 and II.1 of the Act do not apply to contracts for improvements to land used in connection with a Class 1 nuclear facility as defined in SOR/2000-204 (Class 1 Nuclear Facilities Regulations) made under the Nuclear Safety Control Act (Canada), or to subcontracts made under such contracts.”

Regardless of the reasons why this exclusion was granted to the nuclear industry, it leaves considerable opportunity for several major construction buyers in Ontario to continue to make their own rules. OGCA members need to be aware of this risk. The nuclear industry is one of the largest industries in our province, expanding rapidly as refurbishment projects accelerate, and will touch on the lives and business practices of many contractors and subcontractors.

Free from the new Construction Act framework that seeks to balance owner and contractor power in the marketplace, construction contracts in Ontario’s nuclear sector cannot be assumed to have the same fairness or balance.

The OGCA is aware that some existing contracts in this sector already contain clauses that are uniquely onerous, and are unlike the vast majority of construction contracts in the rest of our markets. An example of one such clause is the release of holdback based on the achievement of Total Completion, as opposed to Substantial Completion. 

Here is an example taken from one of our member’s contracts:

(c)    After the Total Completion Date, Contractor may submit an Invoice to <OWNER> in accordance with section 7 .1 of this Schedule P requesting release of the Contractual Holdback (the "Holdback Release Application").

(d)     The holdback period for the Contractual Holdback shall expire 45 days after receipt of the Approved Invoice in respect of the Holdback Release Application (the "Holdback Period"). Subject to the set-off provisions of section 7.2(e) of this Schedule P, any withholding permitted by the Contract Documents and any other rights or remedies of <OWNER> including section 6.2(b) of this Schedule P, within fifteen (15) days of the expiry of the Holdback Period, <OWNER> shall pay the Contractual Holdback set out in the Holdback Release Application.

Immediately we can see some substantial problems that occur here. The contractor cannot submit an invoice until after the Total Completion date, a significantly later date than Substantial Completion, particularly in the nuclear environment. The Owner is entitled to hold payment to the General Contractor, and in turn, all of the general’s subcontractors for a period far longer than is normal in typical construction contracts across our country. Importantly, there is really no need for this delay of payment. The Owner has beneficial use of the project at Substantial Completion, and also enjoys more favourable conditions around the contractor’s ability to assert payment rights on a nuclear power plant facility. The main effect of such contract language is to create unfair leverage by the Owner in the late stages of the project, and the construction community is essentially financing part of the operation of our power generation system as the Owner needlessly sits on this cash. 

In this situation, there are too many ways for the owner to delay the total completion date by inserting other requirements. For example, the submission of redline documents for Owner’s review and approval is a precondition for Total Completion. The contractor is at the Owner’s mercy to perform its obligations in a timely manner, meanwhile it holds 10% from the GC and its supply chain.

We are advising all members who work in the nuclear industry to read their contracts carefully and be alert for clauses that don’t reflect the same balance of power and fairness that the rest of the marketplace is trending towards with the advent of our new Construction Act, now fully in effect. We urge members not to agree or accept such overtly one-sided clauses that are not in the best interest of general contractors, their subtrades, and the industry in general.