Surety Corner: Overview of the new CCDC 2 2020 Stipulated Price Contract

In December 2020, the Canadian Construction Documents Committee (CCDC) published an update to the CCDC 2 Stipulated Price Contract, the most commonly used construction contract in Canada. The majority of changes were implemented after a survey of industry stakeholders including contractors, consultants and owners. The goal with the changes was to limit the ever-growing supplementary conditions and to update the contract to meet current construction legislation requirements. While there are a variety of changes, in our opinion the most impactful changes have been made to the payment section, insurance requirements under the CCDC 41 and a new Ready for Takeover project milestone.

Ready for Takeover

The Ready for Takeover Milestone was added to address the misalignment between substantial performance and an owner’s specific project requirement. This concept largely replaces the idea of substantial performance of the work as the key project milestone moving forward.

In order to achieve Ready for Takeover on a project, there are a number of conditions that must be satisfied. The mandatory requirements include the certification of substantial performance, compliance with the occupancy permit and a copy of as-built drawings available on site.

Once a contractor deems that they have achieved Ready for Takeover, they must provide a written application to the consultant and owner which includes any items remaining to be completed and a timeline for finishing the work. From there the owner and consultant have 10 days to either confirm or deny the ready for takeover along with providing their written reasons for doing so.

This section of the new CCDC 2 also outlines the conditions for Early Occupancy by the Owner. An owner make take early occupancy of a part of the work when agreed to by the contractor. When this does occur, the contractor shall cease to be liable for that section of the project and the warranty period shall commence specific to the part that has been occupied.

Payment Terms & Holdbacks

The new CCDC 2 includes modified payment terms to reflect prompt payment legislation as it rolls out in provinces across Canada. Invoices must now be sent to both the owner and consultant in all cases and the invoice must comply with local legislation. If the owner or consultant deems that any portion of the invoice is not due, they must provide this in writing within 10 days of receipt of the invoice along with their rationale for denying such payment. For any amounts not disputed in writing, the Owner shall pay the amount due on or before 28 days after receipt of a ‘proper invoice’.

It is also important to note that despite the new Ready for Takeover milestone holdbacks remain tied to the Substantial Performance of the work. Following Substantial Performance, holdbacks shall be paid within 10 days of the expiry of the lien period. Lastly, the new CCDC 2 allows for holdbacks to be released annually for multi-year projects.

CCDC 41 Insurance Requirements

In addition to updating the CCDC 2, the CCDC also updated the CCDC 41 Insurance Requirements document. This was subsequently published on December 14th, 2020. This is the first time this document has been updated since 2008 and there were quite a few changes as follows:

• All insurance requirements now reference the Ready for Takeover milestone
• The contractor’s general liability insurance per occurrence limit increased from $5M to $10M, with a deductible not exceeding $10,000
• The automobile insurance per occurrence limit increased from $5M to $10M
• The manned aircraft and watercraft liability insurance per occurrence limit increased from $5M to $10M, with a deductible not exceeding $10,000 (when applicable)
• The addition of an unmanned aerial liability insurance requirement with a per occurrence limit of not less than $5M (when applicable)
• The addition of a new contractor’s pollution liability insurance requirement with a per occurrence limit of not less than $5M

Of note, the CCDC 41 is a general insurance document written by the CCDC that is referenced in both the 2008 and the 2020 versions of the CCDC 2. The specific wording in both contracts refers to the CCDC 41 that is in effect at the time of bid closing. As such, even though an owner or consultant may not be requesting these higher limits from you yet, these new requirements are a contractual requirement that is in effect today whether you are signing the newer or older version of the CCDC 2.

Surety Consideration

Since the CCDC 2 is the most commonly used construction contract in Canada, it is also the most commonly bonded contract. As such, your bond company will want to know that you have taken the time to review and understand the changes and they may even ask for proof of the higher insurance requirements to ensure their contractors are meeting their contractual requirements. In addition, the combination of the improved payment terms and the release of phased holdbacks on multi-year projects will positively impact cash flow and working capital for contractors allowing for greater leveraging of your bond facility.

 

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