Construction Progress Payments Lecture 7

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.