CSP introduction

The content here is adapted in part from Helen Xie’s excellent post relating to CSPs in her construction project management blog. We’ve updated references so they relate to the new Ontario Construction Act proclaimed to go into effect July 1, 2018, with additional provisions relating to prompt payment and adjudication scheduled to be implemented in October, 2019.

NOTE: The Ontario Construction Act has transitional rules/provisions which, for the purpose of substantial performance thresholds, lien holdback timeframes and other provisions, set the previous Construction Lien Act rules to if your project started before July 1, 2018, or at that time was in the active procurement stages. You should also check with the owner/your lawyer if if the project relates to leasehold improvements, as in some situations, the old Construction Lien Act rules will apply for several years under the lease terms.

*Disclaimer: the content of this blog post is designed to provide information only and do not constitute legal advice. If legal advice is required, legal services should be sought.

What is Substantial Performance?

Substantial Performance of work (or substantial completion) is a crucial construction milestone.

A project achieves substantial performance when it is sufficiently completed for its intended use except for a few minor deficiencies. This level represents roughly 97% completion of the work in the construction contract.

In accordance with the Ontario Construction Act, a contract is substantially performed:

(a) when the improvement to be made under that contract or a substantial part thereof is ready for use or is being used for the purposes intended; and
(b) when the improvement to be made under that contract is capable of completion or, where there is a known defect, correction, at a cost of not more than,
(i) 3 per cent of the first $1,000,000 of the contract price,
(ii) 2 per cent of the next $1,000,000 of the contract price, and
(iii) 1 per cent of the balance of the contract price.  R.S.O. 1990, c. C.30, s. 2 (1); 2017, c. 24, s. 4 (1, 2).

Note thee levels are significantly higher than the previous Construction Lien Act, allowing for a higher threshold of “work to do” under the new rules for projects above $500,000.

The certification process

Helen Xie writes that the substantial completion stage involves a certification process.

When the job reaches the point of substantial completion, the payment certifier (usually the architect), the owner and the general contractor will conduct a final walk-through of the finished project. As a result of the walk through, a deficiency list is produced. Deficiency list is a compiled list of items to be resolved before the owner accepts the project as 100% complete.

The certification process begins with the general contractor. He/she fills out a “Certificate of Substantial Performance” form, also known as a form 9 (formerly form 6). This form is forwarded to the payment certifier. Once the payment certifier agrees that work had achieved substantial performance as per contract documents and the CLA, he/she signs the form and forwards to all parties within seven days upon signing.

Publication in a Construction Trade Newspaper

The Ontario Construction Act requires the contractor to publish the certificate in a construction trade newspaper. One of the main changes in the new Act was to remove the definition of a “construction trade newspaper” from the statute and set it out in the regulations, which were updated in the spring of 2018.

The new regulations mostly retain the former statutory language from the original Construction Lien Act, but allow the newspaper to be published either digitally or in printed format.

The specific Construction Trade Newspaper requirements are:

“construction trade newspaper” means a newspaper,

(a) that is published either in paper format with circulation generally throughout Ontario or in electronic format in Ontario,

(b) that is published at least daily on all days other than Saturdays and holidays,

(c) in which calls for tender on construction contracts are customarily published, and

(d) that is primarily devoted to the publication of matters of concern to the construction industry.”

Newspaper choices

Ontario Construction News (www.ontarioconstructionnews.com) has been designed to comply with the certificate publication requirements under the Ontario Construction Act. The daily eight-page newspaper is published digitally, resulting in cost savings because there is no need for printing or postage — and accordingly, OCN-Daily has set advertising rates for notices at up to 50 per cent lower than the long-established Daily Commercial News.

Both publications provide access to a searchable database of certificates and notices, so you can check on the status of projects where you have concerns about holdbacks and lien deadlines. The Ontario Construction Act regulations have been designed so that it would be difficult for other publishers, not familiar with the province’s construction industry and news, could start similar publications.

Warranty Period and Turn Over

Warranty period starts on the date of substantial performance, Helen Xie writes. “On most of my projects, a one year warranty is guaranteed by the general contractor on completed work. Some items such as glass could be covered for a longer period. At the time of substantial completion, the owner takes over responsibility for utilities and insurances for the property.”

Payment of Contract

Substantial performance is when the contractor is entitled to payment of the remaining contract balance less any holdback. The new Ontario Construction Act includes a set of deadlines and procedures to ensure prompt payment, and an adjudiction system to resolve disputes quickly —