Ontario Construction News staff writer
The Supreme Court of Canada has dismissed a BC contractor’s appeal relating to the use of “reprisal clauses” in municipal procurement policies, effectively legalizing the practice across the country.
The Ontario General Contractors Association (OGCA) says the “reprisal clause” problem may be especially acute in Ontario because of circumstances requiring adjudication under the Ontario Construction Act that may force contractors to experience “reprisal clause” penalties beyond their control
Contractor J. Cote & Son Excavating had tried to get the courts to overturn a clause in tender documents used by the City of Burnaby, which stated that the city would not accept tenders from any party that is, or has been within the last two years, involved in legal proceedings initiated against Burnaby arising out of a contract for works or services.
“The clause effectively forces consultants or contractors who may have a dispute with the city to choose between pursuing their legal rights and bidding on city contracts for the next two years,” Canadian Construction Association (CCA) president Mary Van Buren said in a Dec. 16 statement.
The CCA says: “This ruling has serious implications for contractors; it condones placing contractors on a two-year blacklist that bans them from bidding on city projects.”
“The inclusion of these types of clauses in contracts essentially allows contractors to be financially punished for exercising their legal rights,” Van Buren said. “The result is contractors are deterred from accessing the courts to enforce their legal rights because they fear being banned from future participation in projects.”
The Supreme Court’s decision effectively means that there is no constitutional barrier to municipalities using reprisal clauses.
In its statement, CCA says it will continue to closely monitor any developments as the association believes this case ruling could have major implications for the construction industry in all of Canada.
The OGCA, representing the province’s general contractors, says mandatory adjudication provisions within the Ontario Construction Act, may add to the problems in this problem.
“Reprisal clauses restrict competitive bids and drive up the cost of construction because they force contractors, who may have a dispute with the city, to choose between pursuing their legal rights and bidding on future city contracts,” the OGCA says in its weekly eletter released on Tuesday.
“This ruling has serious implications for contractors because it condones blacklisting contractors from bidding on city projects simply because they exercised their constitutional right to access the courts,” the OGCA says.
“We anticipate that the recent introduction of prompt payment legislation will increase the number of adjudications, triggering a jump in reprisal policies being applied.
“Under the new Construction Act, the requirement to trigger an adjudication is not an option, and in fact, is mandatory under certain circumstances. Therefore, a subtrade or a general contractor, following the law as they must do, can then be disqualified from any future bidding with that owner through the application of the reprisal clauses,” the OGCA says.
On this issue, the National Trade Contractors Council of Canada (NTCCC), which has been lobbying for prompt payment legislation in Ontario and throughout Canada for the past several years, agrees with the OGCA’s position on reprisal clauses.
In a statement issued on Wednesday, NTCCC described the recent Supreme Court ruling as “short sighted”.
“The decision effectively upholds “reprisal clauses” in tender documents to force consultants and contractors who may have a dispute with the city to choose between pursuing their legal options or bidding on city contracts for the coming years” said NTCCC chair Sandra Skivsky.“These clauses deter contractors from accessing their legal rights through fear of being banned from participation in future projects,” explains Skivsky.
The clause used against J. Cote & Son Excavating by the City of Burnaby states that the City will not accept tenders from any party that is, or has been within the last two years, involved in legal proceedings initiated against the City arising out of a contract for works or services.
This ruling has serious implications as it allows contractors to be placed on a two-year blacklist that bans them from bidding on city projects. It effectively means that there is no constitutional barrier for municipalities to use reprisal clauses at will, and leaves contractors having to decide between exercising their legal rights or having an equal opportunity to secure major contracts.
The NTCCC says in its statement that it will continue to monitor the developments of this far-reaching ruling and the negative implications it will have on the trades industry. “The NTCCC welcomes the opportunity to work with its stakeholders to address this issue and work towards developing a more equitable solution,” the statement said.