Construction Progress Payments Lecture 7

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Questions and Answers

Which document must be prepared by the General Contractor before starting work on a construction site?

Employee Handbook

Project Schedule (correct)

Safety Equipment Inventory

Project Completion Certificate

What is MOL Form 1000 used for in Ontario?

Certifying health and safety measures

Registering construction employees

Documenting construction project timelines

Registering constructors and employers engaged in construction (correct)

Why is Proof of WSIB Registration important for employers in Ontario?

It ensures compliance with government tariffs.

It is a mandatory requirement for workplace safety insurance. (correct)

It allows for increased project bidding opportunities.

It guarantees payment to subcontractors.

Which of the following is NOT a requirement for progress payments on construction job sites?

Annual Budget Report Signup and view all the answers

What role does the Ministry of Labor, Immigration, Training and Skills Development play in construction projects in Ontario?

Regulating labor-related matters Signup and view all the answers

What must be present at the project site while the constructor is working, according to MOL Form 1000 requirements?

Completed MOL Form 1000 Signup and view all the answers

Which of these documents supports compliance with workplace safety insurance in Ontario?

Proof of WSIB Registration Signup and view all the answers

Which of the following documents verifies that a contractor carries liability insurance?

Certificate of Liability Insurance Signup and view all the answers

What is the primary purpose of WSIB registration for workers?

To ensure workers receive workplace insurance coverage Signup and view all the answers

What information is generally NOT required during the WSIB registration process?

Employee age information Signup and view all the answers

What consequences can employers face for failing to comply with WSIB registration?

Penalties and legal repercussions Signup and view all the answers

How do employers determine their WSIB premium payments?

Based on business type, industry, and payroll amount Signup and view all the answers

What must employers submit annually to the WSIB after registration?

An annual reconciliation statement Signup and view all the answers

What does a Schedule of Values (SOV) represent in a construction project?

A breakdown of the total contract amount into specific work categories Signup and view all the answers

What is the role of the WSIB in promoting workplace safety?

To ensure compliance with health and safety regulations Signup and view all the answers

What must a contractor provide to the contract administrator with each progress payment?

A valid WSIB clearance certificate Signup and view all the answers

What is the primary purpose of the Schedule of Values in the context of billing?

It acts as a benchmark for progress payments. Signup and view all the answers

How does the Schedule of Values assist in budgeting and cost control?

It identifies areas where costs are over or under budget. Signup and view all the answers

What key function does the Schedule of Values serve in relation to project progress?

It shows the completion status of work components. Signup and view all the answers

What is one consequence of front loading in the Schedule of Values?

It allows the contractor to receive higher early payments. Signup and view all the answers

In what scenario might the Schedule of Values be updated during a project?

When there are changes to the project's scope of work. Signup and view all the answers

What is a potential risk associated with front loading?

Abandonment of subsequent work by the contractor. Signup and view all the answers

What role does the Schedule of Values play in documentation?

It prevents disputes and clarifies costs and work elements. Signup and view all the answers

Why is tracking individual line items critical for project stakeholders?

To monitor project completion and manage schedules effectively. Signup and view all the answers

What is the primary concern of contract administrators when evaluating a contractor's schedule of values?

Avoiding front loading practices Signup and view all the answers

Why might contractors allocate higher values to certain items in their schedule of values?

Due to anticipated increases in quantity or scope during execution Signup and view all the answers

What do unit prices in the schedule of values typically include?

Overheads, profit, and all associated costs Signup and view all the answers

How are unit prices beneficial during the bidding process?

They facilitate easy comparison of bids Signup and view all the answers

When are unit prices especially useful according to the contract?

For progress payments and change orders Signup and view all the answers

What is a statutory declaration made by the contractor?

A written sworn affidavit Signup and view all the answers

What does front loading refer to in the context of construction contracts?

High initial cost estimates based on future potential increases Signup and view all the answers

What is one of the main roles of unit rates in construction contracts?

To align payments with actual work completed Signup and view all the answers

What is the purpose of issuing a Certificate of Substantial Completion?

To confirm that the work has met substantial completion Signup and view all the answers

What event is triggered by the published date of the substantial completion certificate?

Start of a 45-day hold back period Signup and view all the answers

How is the contract administrator involved in the application for progress payments?

They review and approve the invoices submitted by the general contractor Signup and view all the answers

What is the first percentage applied to the first $1,000,000 in the given contract?

3% Signup and view all the answers

What percentage is applied to the amount remaining after the first two $1,000,000 segments?

2% Signup and view all the answers

What is the primary purpose of statutory holdback in construction contracts?

To protect the owner from lien claims Signup and view all the answers

What action does the Lien Act allow if a lien is filed against the property?

The owner can use the statutory holdback account to settle the lien Signup and view all the answers

What is the typical percentage for deficiency holdback in construction contracts?

5% or more, as negotiated Signup and view all the answers

When is the statutory holdback returned to the contractor?

45 days after publication of substantial completion, if no liens are pending Signup and view all the answers

What does 'substantial performance' mean in the context of the Construction Lien Act?

Most of the work is usable or able to be completed Signup and view all the answers

How is the cost for achieving substantial completion calculated according to the act?

3% of the first $1,000,000, 2% of the next $1,000,000, and 1% of the remainder Signup and view all the answers

What is required from the contractor for each progress payment under the relevant act?

A statutory declaration Signup and view all the answers

What defines a deficiency holdback in terms of its use?

It is optional and is negotiated between the owner and contractor Signup and view all the answers

Study Notes

Lecture 7 - Progress Payments

Lecture objectives: Familiarize students with start-up document requirements for progress payments, the Construction Lien Act, and the successful handling of progress payments on construction sites.
Progress Payments - Start Up Document Requirements:
- Before work begins, the General Contractor must submit various documents for approval to the Contract Administrator.
- Required Documents for Progress Payments
  - Project Schedule
  - Health and Safety Policy & Program
  - MOL Form 1000 (Registration of Constructors & Employers Engaged in Construction)
  - Certificate of Liability Insurance
  - Proof of WSIB Registration
  - Schedule of Values
  - Statutory Declaration

3) MOL Form 1000

In Ontario, the Ministry of Labor, Immigration, Training, and Skills Development (formerly the Ministry of Labor) is responsible for labor-related matters, including employment standards, occupational health and safety, and workers' rights.
Each construction employer in Ontario must complete MOL Form 1000 (Registration of Constructors and Employers Engaged in Construction).
This form must be present on the project site while the contractor/employer is working there.

5) Proof of WSIB Registration

WSIB stands for Workplace Safety and Insurance Board.
WSIB registration entails the process by which employers in Ontario register with WSIB to gain coverage for workers' compensation and workplace safety and insurance.
Registration process involves providing business information (employee count, work type, and payroll details) with the WSIB.
Employers pay premiums based on business type, industry, and payroll to fund the provincial workers' compensation system.
Annual reporting is mandatory to update WSIB on payroll and other relevant data to determine the annual premium payments.
Compliance with health and safety regulations is essential to prevent workplace accidents and injuries, aiding in worker safety.
Failure to comply with WSIB registration and related regulations may result in penalties and legal consequences.

6) Schedule of Values (SOV)

A detailed breakdown of the total contract amount into various line items, each representing a portion of the work.
Each line item is paired with a specific dollar amount corresponding to its value or cost.
The total sum of line items must equal the total contract amount.
Purposes of SOV:
- Billing and Payment: The approved SOV becomes the benchmark for progress payments.
- Budgeting and Cost Control: Contractors use the SOV to monitor and manage project costs by tracking the progress of individual line items.
- Progress Tracking: Project stakeholders use the SOV to track the project's progress.
- Documentation: The SOV helps to prevent disputes between parties due to its clear and transparent breakdown of work elements, costs and making it easier for any payment or performance issues to be resolved.
- Change Orders: The SOV can be updated to reflect changes in the scope of work, which could affect the overall contract amount.
Frontloading is a practice where undue high costs (of work) are allocated (erroneously) to the initial stages of a project making it more financially beneficial for the contractor early on but leading to potential abandonment by the contractor later. Contract administrators are diligent in assessing the SOV to prevent contractors from engaging in frontloading
Unit Prices / Unit Rates: The SOV can include unit prices/rates for items like doors, windows, paving. This provides the total price to complete that unit of work which includes labor, material, equipment, overheads, and contractor profit. It makes comparisons between bids easier, allowing owners to select the best-priced contractor more efficiently. Unit prices are used in billing for progress payments. It allows owners to compare bids and select the best value easily.

7) Statutory Declaration

A statutory declaration is a written sworn affidavit made by the contractor.
The deponent (affiant) in the declaration affirms that the information in the document is true and accurate to the best of their knowledge and belief.
This is a legally binding document crucial in situations such as
- Protection of Owner: The contractor declares they have fairly and correctly distributed funds to subcontractors, trades, suppliers, labor, etc.
- Preservation of Lien Rights: This document assists with preserving lien rights of subcontractors and suppliers.
- Project Financing: Financers might require a contractor's Statutory Declaration when releasing further payments.

Holdbacks

Holdback is money held by the owner (either 10% or more) from progress payments.
Holdback is usually released at a later stage of the project when certain conditions have been fulfilled.
In any construction project, the holdback falls into two categories:
- Statutory holdback (10%): Mandatory requirement per the Construction Lien Act
- Deficiency holdback (negotiated): Optional amount agreed upon between the owners and contractors, typically 5% or more.
- Holdback is released to the contractor when certain conditions have been fulfilled.
- 10% Statutory holdback is released 45 days after the date of publication of substantial completion certificate, if no lien claims are pending on the property. Deficiency holdback is usually released by 1 year after date of substantial completion.

Substantial Completion/Performance of Work

Substantial completion happens when an improvement satisfies its intended purpose.
Calculation criteria for Substantial Completion:
- Known defects can be corrected for not more than the following percentage of the contract price: (i) 3 percent for the first 1,000,000(ii)2percentforthenext1,000,000 (ii) 2 percent for the next 1,000,000(ii)2percentforthenext1,000,000, and (iii) 1 percent of the remainder.

Certificate of Substantial Completion

Issued by the contract administrator when the work is deemed substantially complete, per the Construction Lien Act.
This date is critical because it triggers certain developments, including the release of the 10% holdback and establishing the warranty period. It also ends the possibility of liquidated damages.

Progress Payments

Application For Progress Payments: General contractors typically submit monthly applications to the contract administrator. Invoices from trades and suppliers are consolidated to request payments.
The owner issues the payment cheque in the name of the general contractor.
The general contractor then pays the individual trades and suppliers directly.
Timeline for Payment Processing: Payment processing generally takes approximately 30-45 days.

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Description

This lecture focuses on the essential start-up document requirements for progress payments in construction, including the Construction Lien Act. Students will learn about the necessary documentation needed before work begins and how to manage progress payments effectively on construction sites.