June 27, 2013
Identifying CCDC contract pitfalls to avoid
Contracts provided by the Canadian Construction Documents Committee (CCDC) possess the advantage of having been developed by organizations that are familiar with common approaches to standard construction project risks.
“However, while the projects themselves may share common scenarios, they aren’t always standard,” says Glenn Ackerley, a partner with WeirFoulds LLP. “Often, there are so many supplementary terms and conditions that modify the standard contract that they become the norm.”
Ackerley identifies some of the typical pitfalls to avoid with standard CCDC contracts.
—CCDC 2-2008 Stipulated Price: This contract covers stipulated price, fixed price and lump sum arrangements.
“What’s important is that the contract price be based on a scope definition you understand,” says Ackerley. “There’s nothing worse than a fixed price where there are a lot of gaps and holes in the scope — things that are not yet settled on and defined. You end up at a minimum with a whole bunch of cash allowances set aside and that can get complex and awkward.”
While this contract makes frequent references to the role of a consultant, a separate contract between the owner and consultant is still required.
—CCDC 3-1998 Cost Plus:
“The good news for the owner with this contract is that the contractor has no incentive to cut corners,” says Ackerley. “But there’s less incentive for ambition on the part of the contractor, because the longer they take, the more they make. You don’t know what it’s going to cost until you get to the end.”
—CCDC 3-1998 Cost Plus (Guaranteed Maximum Price):
“Here, you get some price certainty on the part of the owner, but there’s no particular motivation under this model for the contractor to come in lower than the guaranteed maximum price (GMP),” says Ackerley.
However, this contract can be amended to provide incentives to contractors to come in under the ceiling.
—CCDC 4-2011 Unit Price: This is a fixed price contract, based on the cost of a unit of construction.
“If there’s more work to do, the owner will pay more, but the rate the owner pays is fixed,” says Ackerley. “Correctly assessing the unit cost is the risk to the contractor, while the owner bears the risk of cost variation due to changed quantities.”
—CCDC 5A-Construction Management Contract for Services: In this contract, issued in 2010, the owner contracts directly with trade contractors. It’s commonly paired with CCDC 17-2010, Stipulated Price Contract for Trade Contractors on Construction Management Projects.
“The biggest problem with this form of contract is that it contemplates that the owner is responsible for occupational health and safety issues,” says Ackerley. “That may be a risk the owner is uncomfortable with.”
—CCDC 5B-Construction Management Contract for Services and Construction: In this alternative approach, also issued in 2010, the construction manager contracts with the trades as sub-contractors and assumes health and safety responsibilities. The contract offers significant flexibility, for example conversion to a fixed price or GMP contract midway through the project.
“The problem with the form is that it doesn’t stipulate the method of conversion,” says Ackerley. “How do you get from cost plus to fixed price? When do you do it? How do you establish the price and what if you can’t reach an agreement?”
Conversion also creates a raft of complex supplementary conditions and amendments, including conditions that have already been modified by the contract’s appendix.
Ackerley notes that CCDC 14 (Design-Build Stipulated Price Contract) and CCDC 15 (Design Services Contract Between Design-Builder and Consultant) are positioned for a July release.
“The CCDC is also currently canvassing construction stakeholders about the supplementary conditions that are typically and consistently appended to contracts in an effort to incorporate them into standard contracts,” he says.
Ackerley spoke at the Construction Law Best Practices conference produced by Informa Canada held recently in Toronto.
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