Construction File: Addressing Holdbacks

The most common reasons for withholding funds on a construction project are as follows: There may be a statutory requirement for a holdback, as is the case under the Builders Lien Act, or there may be a contractual agreement to hold back funds, generally in the event of deficiencies in the work. While both reasons are legitimate on their face, abuses can happen. 

Some public owners may try to rely on the statutory holdbacks despite the fact that the applicable legislation does not apply. Others may impose unreasonable contractual obligations on the contractor and withhold funds for purposes other than simple deficiencies in an effort to warranty the work or guard against possible problems in the future. While public owners may take such an approach thinking it will ultimately protect their interests, it actually can result in an inequitable and unstable construction pyramid.

The payment schedule is critically important in the progress of a construction project. Any disruption or inequity in this process can upset the timely completion of the project, not only by causing disputes, but also by complicating the movement of funds down the construction chain. It is important, therefore, for public owners to evaluate their current policies on withholding funds and ensure that those policies are reasonable and appropriate.

In determining what is a reasonable withholding of funds on a construction project, public owners should look to standard industry procedures. The BC Construction Association has developed a policy for holdbacks that reflects the position of the Canadian construction industry. We encourage public owners to adopt the following policies in managing their construction projects.

Deficiencies: Where there are deficiencies, the consultant should provide the contractor with a complete and concise list to enable completion by a mutually accepted date. Funds held back for deficiencies should be based on the value of the outstanding work and should not exceed two times said value.

Builders Lien: The requirements of the Builders Lien Act should be complied with in all applicable circumstances. No funds should be withheld on projects where lien rights do not exist. Making use of standard industry policies and procedures on public construction results in quality construction!

The Construction File is a publication of the BC Construction Association.
For additional information contact the BCCA.

construction-file-default.jpg
December 22, 2015

Construction File: Onerous Bidding Conditions in 2015
The soon-to-be-published ‘Building a BC Construction Innovation Strategy’ (a joint initiative of BCCA and the Home Owner Protection Office) points out one of the biggest hindrances to innovation and productivity in the construction industry: the inequitable allocation of risk down the supply chain to those least able to support it.
Read More
construction-file-default.jpg
July 20, 2015

Construction File: Job Order Contracting
To support public owners in their efforts to hold themselves accountable to taxpayers through fair open, and transparent procurement practises, the BCCA offers Thresholds for Procurement of Publicly Funded Construction policy.
Read More
construction-file-default.jpg
July 20, 2015

Construction File: Liquidated Damages Clauses
By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.
Read More
construction-file-default.jpg
May 15, 2015

Construction File: The Importance of Planholder Lists
Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.
Read More
construction-file-default.jpg
May 08, 2015

Construction File: Post Closing Over Budget Negotiations
The rationale of the tender process is to replace negotiation with competition and, subject to the terms of the tender documents, negotiation is generally not permitted in the tender process. One of the primary reasons why negotiation is not permitted is to prevent bid shopping. Generally, where the tender documents expressly permit negotiation, negotiation is only permissible so long as it is consistent with what is expressly provided in the tender documents.
Read More
construction-file-default.jpg
March 01, 2015

Construction File: The Pitfalls of Incomplete Contract Documents
In providing a price, contractors expect that the contract documents are complete and reflect the project requirements, and that any changes, errors or omissions from the documents will lead to a change order with commensurate adjustment to both the contract price and duration. As the bidding is done in a competitive environment, contractors and their subcontractors are reluctant to add allowances to their tendered price, fearing that they will not be successful as low bidder.
Read More
construction-file-default.jpg
February 01, 2015

Construction File: BidCentral - By the Industry for the Industry
Since the early days of Building Exchanges, facilitating and managing public construction bids has been a focal point for construction associations. The BC Construction Association (BCCA) and its regional construction association partners BCCA North, Southern Interior Construction Association, BCCA Vancouver Island and Vancouver Regional Construction Association, are no exception to this rule.
Read More
construction-file-default.jpg
June 17, 2014

Construction File: Prompt Payment Creates a Sustainable Industry
Construction work is project based, with unique project teams assembled through a tendering process. These project teams typically involve an owner who is the buyer of construction services from a general contractor, who in turn employs sub-contractors and often sub-sub-contractors. Add numerous suppliers to the mix, at all levels of the contracting pyramid.
Read More
construction-file-default.jpg
January 30, 2014

Construction File: Fair Markups on Changes to the Work
The impact of changes in the scope of work – both time and money – is probably the single most disputed issue in construction. Therefore, in order to keep the project moving toward completion, the contractual provisions governing changes must be fair as well as effective in encouraging the timely resolution of cost and time issues. However, feedback from contractors is that change order markups are a major issue. Two decades ago, the discussion about markups on changes to the work was not as intense as it is today. What has changed?
Read More
construction-file-default.jpg
August 20, 2013

Construction File: BidCentral implements new e-bonding
When the British Columbia Construction Association (BCCA) introduced online bidding three years ago – in the form of the BidCentral platform – there was one element of the process anticipated to go through the most significant evolution: the protocol for the submission of bid bonds online. Or, as it has now commonly become known: e-bonding.
Read More
construction-file-default.jpg
April 18, 2013

Construction File: Aboriginal Business Enhancement and Set-Aside Programs
With little to no exception, all levels of government within Canada have an aspiration to further economic development through their purchasing conduct – often highlighting specific populations and objectives. In addition to established policies, public sector entities continue to learn and expand policy and processes to do with minority groups such as Aboriginal suppliers. Recent examples in our province can be drawn from tenders for civil construction projects where preference is given to contractors who hire Aboriginal workers or who engage in Joint Venture with Aboriginal companies.
Read More
construction-file-default.jpg
January 03, 2013

Construction File: Liquidated Damages Clause
A liquidated damages clause will be enforceable where it represents a genuine pre-estimate of the damages an owner will likely suffer as a result of a contractor’s delay. However, where a liquidated damages clause is excessive and objectively unreasonable, it will likely be considered a penalty clause and will be unenforceable.
Read More
construction-file-default.jpg
February 13, 2012

Construction File: Onerous Bidding Conditions Continue to Trouble Industry
In our January 2007 Construction File we published how we were going to be issuing Contractor Alerts to bring attention to the onerous clauses that contractors see as an impediment to bidding on projects. In the five years since we introduced this protocol we have issued several Contractor Alerts. On the projects where it has been used it has been effective in educating contractors of the risks of onerous bidding conditions.
Read More
construction-file-default.jpg
December 08, 2010

Construction File: Outsourcing = Best Value
Government agencies in BC are facing increasingly tight budgets and the need to efficiently allocate scarce resources is critical. In order that the taxpayers can receive the best possible services, agencies must focus on their core activities and seek to outsource others to private industry.
Read More
April 01, 2010

Construction File: Tercon Decision Important for Construction Industry
“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal. They were referring to the actions of the BC Ministry of Transportation and Highways, during the tendering phase of a public construction project.
Read More
March 01, 2010

Construction File: Trade Contractors in Post Bid Negotiations and Trade Agreements
The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner, to general contractors, to subcontractors, to suppliers and other participants. The invitations generate a corresponding flow of bids upwards along the same food chain. Each compliant bid submitted along that food chain creates a bid contract between the party seeking bids and the bidder which, generates corresponding obligations as expressly and impliedly set out in the bid documents.
Read More
December 21, 2009

Construction File: The Cost of Onerous Bidding Conditions
In the June 2002 BCCA Bulletin we published an article called ‘A Fine Day to be a Lawyer’. At that time we expressed concerns about the implementation of the BC Government’s Capital Asset Management Framework and in particular the removal of the BC Government’s Standard Stipulated Sum contract, which was removed under the guise of reducing red tape.
Read More
September 14, 2009

Construction File: BCCA introduces the Electronic Bidding System
The BCCA Electronic Bidding System is one component of the on-line bidding tools that were developed by BCCA along with Infinite Source Systems. What has been built is a seamless system that has the capability to eventually include everyone in the bidding chain from material suppliers bidding to subsubcontractors through to the general contractors bidding to owners.
Read More
May 06, 2009

Construction File: Liquidated Damages Clause
By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.
Read More
September 10, 2008

Construction File: Pre-qualification Contributes to the Rising Cost of Construction
Why is it that BCCA is adamantly opposed to pre-qualification of contractors as general practice? In a nut shell, it is because of the subjectivity of the process. As a general practice we don’t see that it can be completely fair, open and transparent. Somewhere in the methodology, a decision is made that affects a contractor’s right to do business with the government based on some subjective consideration.
Read More
April 16, 2008

Construction File: Use of Standard Documents Reduces Risks
When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.
Read More
April 15, 2008

Construction File: Use of Standard Documents Reduces Risks
When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.
Read More
March 21, 2007

Construction File: The Importance of Planholder List
Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.
Read More
January 02, 2007

Construction File: BCCA to Issue Onerous Bidding Alerts
In an effort to advise contractors of the risks associated with onerous clauses in bidding documents, the BC Construction Association will be issuing Contractor Alerts. The Alerts are intended to bring attention to the onerous clauses that some contractors see as an impediment to bidding on projects.
Read More
November 30, 2006

Construction File: Myths of Gold Seal Requirements as a Condition of Contract
Recently there have been public owners who have implemented requirements for certification for Site Superintendents as a condition of contract on construction projects. The certification has been the CCA Gold Seal certification with the alternative requirement that the Site Superintendent be indentured in the Gold Seal program within a specified time period, after award of contract.
Read More
July 17, 2006

Construction File: Why The Public Construction Council of BC?
The Public Construction Council of BC has just begun its fourth decade in existence. It has not survived this many years without having good reason for its continued existence. One of the mandates of the Council is to maintain guidelines which promote open, fair and transparent bidding.
Read More
May 19, 2006

Construction File: Procuring Trade Contractor Bids
There has been a lot of discussion regarding the positive amount of construction on the books and being planned for British Columbia over the next few years. One area of concern that we hear from many stakeholders in the industry is where we are going to find the trade contractors with people to build our facilities and infrastructure.
Read More
January 11, 2006

Construction File: Maximizing Competitive Bidding
Given the environment for bidding in these busy times, we believe that owners are competing with each other for the strained resources of the industry. To attract contractors to bid your project and to ensure you are maximizing the competition, we recommend the following...
Read More
January 01, 2005

Construction File: A Guide to the Use of Cash Allowances
Cash allowances are recommended where it is impossible to clearly define the scope of a particular item of work, where it is difficult for bidders to accurately estimate the cost of a particular item of work or where access to certain building systems may limit the bidding competition.
Read More
October 01, 2003

Construction File: Addressing Holdbacks
The most common reasons for withholding funds on a construction project are as follows: There may be a statutory requirement for a holdback, as is the case under the Builders Lien Act, or there may be a contractual agreement to holdback funds, generally in the event of deficiencies in the work.
Read More