OGCA president’s report: Addressing the construction industry shut-down

By Clive Thurston

Editor’s note: Clive Thurston, president of the Ontario General Contractors’ Association (OGCA) sent this message to the association’s membership last Tuesday.

As the province, the country, and the world continue to grapple with the devastating effects of the COVID – 19 virus, construction industries across the world are facing significant challenges. Focusing on Ontario, last week the government took the step of shutting down a large part of the ICI sector. Up to this point, we have been reaching out to government on a regular basis to prepare for such a shutdown by providing mechanisms to protect contractors and their businesses when this happened.

We have been pushing for the release of holdback, for a clear definition of Force Majeure, for an end to reprisal clauses and as you read recently, we are pushing for more clarity on what is and what is not an essential service here in Ontario.

We have spent a great amount of time working with our lawyers to address how we as contractors can respond, and now we must respond, as owners are issuing stop work orders. We must look toward contracts to ensure that we protect their businesses, so that when this is over, we can reopen.

To that end, the first point I want to make is that under CCDC contracts, there are delay clauses, including GC 6.5.2 and GC 6.5.3 of CCDC 2.  All contractors who have been told to shut down their projects need to check their contracts, and consult with your legal advisor.

As many of you know, the industry as a whole has been pushing for a clear definition of Force Majeure, since at present, it is a jumble of different interpretations as to what is and is not covered and what may or may not have an impact on you. We are continuing to push to try and achieve clarity for a fair definition that will be applied across the province on all projects with all owners and industry stakeholders.

With delay claims being filed, a question arises: will the adjudication section of the current Construction Act be applicable to resolving these disputes?

We have discussed this with two of the main players who were involved in the creation of the Construction Act, Mr. Bruce Reynolds and Mr. Geza Banfai. As it is with most legal questions, the answer is a definite maybe. Unlike in the U.K., the adjudication remedy under Ontario’s Construction Act was not meant to include all disputes, only disputes about valuation and payment. To qualify, the dispute must be a matter listed in s. 13.5 (1), clipped below:

13.5 (1) Subject to subsection (3), a party to a contract may refer to adjudication a dispute with the other party to the contract respecting any of the following matters:

1. The valuation of services or materials provided under the contract.
2. Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
3. Disputes that are the subject of a notice of non-payment under Part I.1.
4. Amounts retained under section 12 (set-off by trustee) or under subsection 17 (3) (lien set-off).
5. Payment of a holdback under section 26.1 or 26.2.
6. Non-payment of holdback under section 27.1.
7. Any other matter that the parties to the adjudication agree to, or that may be prescribed. 2017, c. 24, s. 11 (1).

A delay claim is usually a claim for damages for breach of contract, e.g. subcontractor claimant saying “You had an obligation to coordinate the work, GC, and you failed to do that. As a result, I spent six months longer on this project than I should have, at great expense. So pay me!” Unless this sort of claim can be characterized as a request for a Change Order which is then rejected, adjudication may not available here.

But suppose you’re under a CCDC 2, and the government has just shut down your project. Under GC 6.5.2, you, GC, are entitled to an extension of time and reimbursement for your reasonable costs due to that delay. You apply for a Change Order and the owner refuses to issue one.

In that scenario, you would appear to be under s. 13.5, item 2, with what many would call a “delay claim”. And that, in the view of some, is adjudicable.

So there you have it – another lawyer, saying one more time: “It depends”.

This is why the OGCA and its partners in the CDAO have been advocating to government for a great deal of time now to clear things up and to make things fair. If these issues are not resolved, including the issue of limitation and holdback release, companies are going to suffer and that will make it all the more difficult for us to recover when we are asked to reopen and relaunch our projects.

I want to address one final question that ties in directly to the great confusion surrounding the announcements last Friday (April 3):

If an owner/developer orders a contractor to continue work on a project because the owner deems it to be an essential service, and that owner provides such order in writing, is that sufficient protection for the GC to proceed until such time as he may be advised differently by a government inspector or other authority?

Since the announcement (on April 3), there has been a great deal of confusion as to what is or is not an essential service. Many projects are falling into a “gray zone”, where the answer is not clear. Many owners are stretching the rules and claiming to their contractors that their project is definitely an essential service and therefore, they are expected to continue working or face penalties.

These threats should not be taken lightly as there are significant penalties in most contracts covering liquidated damages and other penalties if we do not continue work or deliver our projects on time. At the same time, the penalties for failing to shut down are just as great and just as much a threat to our survival as are these threats by owners who are insisting that we continue to work.

We have said since Friday that more clarity needs to be provided as our members are being caught between a rock and a hard place. I received many calls saying the owner is prepared to provide in writing that they should continue because they are an essential service, so we went back out to our legal advisors and asked them very clearly: will such a letter protect you from the the punitive fees and fines contained in the Emergency Management and Civil Protection Act, which is the legislation under which the list of essential workplaces was created..

The answer in their view is “no”.

The owner’s opinion about whether or not its project is one within that list of essential workplaces is irrelevant to the question of whether or not that project is indeed exempted as essential. Ultimately that question is one of interpretation of the list itself, and that interpretation can be made, for example, by a court at the trial of a prosecution under the EMCPA.

By the way, s. 7.0.11 of the EMCPA defines that risk:

Offences

7.0.11  (1)  Every person who fails to comply with an order under subsection 7.0.2 (4) or who interferes with or obstructs any person in the exercise of a power or the performance of a duty conferred by an order under that subsection is guilty of an offence and is liable on conviction,

(a)        in the case of an individual, subject to clause (b), to a fine of not more than $100,000 and for a term of imprisonment of not more than one year;

(b)        in the case of an individual who is a director or officer of a corporation, to a fine of not more than $500,000 and for a term of imprisonment of not more than one year; and

(c)        in the case of a corporation, to a fine of not more than $10,000,000.  2006, c. 13, s. 1 (4).

Separate offence

(2)        A person is guilty of a separate offence on each day that an offence under subsection (1) occurs or continues.  2006, c. 13, s. 1 (4).

Increased penalty

(3)        Despite the maximum fines set out in subsection (1), the court that convicts a person of an offence may increase a fine imposed on the person by an amount equal to the financial benefit that was acquired by or that accrued to the person as a result of the commission of the offence. 2006, c. 13, s. 1 (4).

Exception

(4)        No person shall be charged with an offence under subsection (1) for failing to comply with or interference or obstruction in respect of an order that is retroactive to a date that is specified in the order, if the failure to comply, interference or obstruction is in respect of conduct that occurred before the order was made but is after the retroactive date specified in the order. 2006, c. 13, s. 1 (4).

The maximum penalties set out in s. 7.0.11 are certainly heavy, but can safely be considered reserved only for the most serious and egregious violations. That, however, will be cold comfort to contractors and rightly so.

So what to do?

In principle, we can think of at least two approaches for dealing with this problem of projects in the “grey zone”:

1. Proactively provide clarity and certainty.
2. Maintain the status quo and deal with problems as they arise.

Option 1 is the surest way the industry can proceed forward about these projects. To do it, government would probably need to establish some form of conformance letter system looking like this:

• it issues conformance letters verifying whether or not a project is covered by the list
• these conformance letters would be issued on a project-by-project basis
• letters to be issued within a very short time (say, no later than 48 hours of a request)
• request for a letter to be made by either owner or contractor. The letters should be expressly stated as binding upon the Crown for purposes of any enforcement under the EMCPA
• all communications (requests and letters) to be delivered by email.

Option 2 maintains the status quo but is problematic. The problems include:

• while some GCs will receive these owners’ letters and assume the risk, others will not
• even those “grey zone” projects that continue will remain subject to shut down the next day, or the day after, or the day after … Parties will continue to operate in uncertainty, which will make planning and execution difficult or impossible
• the government will need to expend resources in investigation, and possibly prosecution, of “grey zone” projects it deems outside the list of essential workplaces
• there is an increased risk of disputes and claims between owners and GCs.

Either way, the government will need to spend resources on this. The political question is: where shall these resources be spent – establishing a conformance letter system, or chasing down “grey” projects?

We believe that when the government analyzes this, it will come to the conclusion that a conformance letter system is both cost-effective compared to the costs of investigation and enforcement, and politically expedient. A conformance letter system need not be complicated, and it will certainly be short-lived. There will be some number of requests coming in during the first few days, and that will present the opportunity to further refine the list of essential workplaces. Our guess is that as these refined lists of essential workplaces get published, the number of letter requests will reduce significantly, as the uncertainties are clarified day-by-day.

These are just recommendations for discussion on ways we could address this. One of the other ways that these problems and others could be addressed quickly and effectively is to follow through on a recommendation the CDAO made some time ago, and create an industry action table with representatives from a number of stakeholders with expertise in health and safety, contracts, tendering, and other industry specific issues that require a certain degree of expertise that we in the industry possess.

This is not new and has been done many times before. Almost every single infrastructure Minister from both governments created such an advisory table and regularly consulted with them to resolve issues and promote the industry. This proved to be invaluable according to the government people we were working with over the years.

Another example is the Construction Industry Advisory Council that was established with the WSIB almost 15 years ago that has proved invaluable to both sides. Most recently, it allowed for the opportunity for our sides to come together and resolve a major issue quickly and effectively.

The same thing was done to resolve the deadlock over prompt payment and adjudication and updating the Lien Act. It is clear that the industry has both the knowledge and the expertise to assist government and provide a sounding board to avoid misunderstandings and confusion.

We are here to help, we always have been, and we have that expertise and professionalism to provide the industry view of what is needed and what is going on.

It is essential that we begin now to take the steps to plan for how we are going to recover on the other side of this emergency. We must do this to ensure that our companies and their employees will still be there when we need them. Without question, this needs a joint committee.

I want to thank our legal team who helped me on this particular topic. We also have a legal team working on health and safety employment and other things. In this case, I want to thank Mr. Geza Banfai of McMillan LLP, Mr. Bruce Reynolds of Singleton, Urquhart, Reynolds, Vogel LLP, Mr. Glenn Ackerley of WeirFoulds LLP, and Mr. Howard Wise of Goodmans. Your support and assistance to our industry and to our members is greatly appreciated, thank you.

Clive Thurston is the OGCA’s president.