Construction Progress Payments Lecture 7

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Questions and Answers

What is the primary purpose of a statutory declaration provided by a contractor?

To request additional funds from the owner

To release lien rights to the owner

To assure the owner that all subcontractors have been paid (correct)

To declare the project completion status

What could be a consequence of making a false statutory declaration?

Initiation of legal disputes with subcontractors

Requirement to return payments received

Automatic suspension from future contracts

Fines or imprisonment under the Criminal Code (correct)

When must contractors provide statutory declarations to contract administrators?

With the initial contract proposal

Only when requested by the contract administrator

Only at project completion

Beginning at the 2nd progress payment (correct)

What is the required percentage of statutory holdback mandated by the Construction Lien Act?

10% Signup and view all the answers

Which statement about deficiency holdback is true?

It may be negotiated between the owner and contractor. Signup and view all the answers

A statutory declaration may be required to preserve which of the following?

The lien rights of contractors and subcontractors Signup and view all the answers

What does the holdback amount represent in a construction project?

Money retained until contract conditions are fulfilled Signup and view all the answers

For which scenarios might a contractor’s statutory declaration be necessary?

For securing project financing and asserting lien claims Signup and view all the answers

What is the updated contract price after including the approved change orders for the first progress payment?

$290,000 Signup and view all the answers

What is the total gross work done for the first progress payment, including change orders?

$170,000 Signup and view all the answers

What percentage is deducted as the deficiency holdback on the net work done for the first progress payment?

5% Signup and view all the answers

How much is the statutory holdback amount deducted from the first progress payment?

$17,000 Signup and view all the answers

What is the total HST added to the cheque amount for the first progress payment?

$18,785 Signup and view all the answers

What is the net amount paid to the contractor after all deductions for the first progress payment?

$144,500 Signup and view all the answers

What is the gross amount of work done up to the second progress payment?

$235,000 Signup and view all the answers

What is the total holdback amount with the owner after the second progress payment?

$24,000 Signup and view all the answers

What is the primary purpose of the schedule of values in a construction contract?

To allocate values to various work items for planning and payment. Signup and view all the answers

Why are unit prices/unit rates included in the schedule of values?

To facilitate easy comparison of bids and payments. Signup and view all the answers

How can unit prices simplify dealing with change orders?

They allow for quick calculations based on pre-agreed rates. Signup and view all the answers

What is a common tactic that shrewd contractors may use in the schedule of values?

They may front load high-quantity items to inflate the bid. Signup and view all the answers

What is the primary benefit of using unit prices for progress payments?

They align payments with actual completed work quantities. Signup and view all the answers

What does a statutory declaration from a contractor typically represent?

A sworn affirmation of the accuracy of submitted documents. Signup and view all the answers

What role does vigilance against front loading play in contract administration?

It prevents overspending by limiting high initial values. Signup and view all the answers

What is one advantage of requesting unit prices during the bidding process?

It provides a basis for potential changes in project scope. Signup and view all the answers

What is the primary purpose of WSIB registration for workers?

To ensure protection and insurance coverage for workplace injuries or illnesses Signup and view all the answers

What must employers do after registering with WSIB?

Submit an annual reconciliation statement with payroll information Signup and view all the answers

What additional obligation do employers have related to health and safety regulations?

Promote workplace safety to prevent accidents and injuries Signup and view all the answers

What determines the amount of premiums an employer pays to WSIB?

The type of industry, business type, and payroll amount Signup and view all the answers

What type of certificate must contractors provide with each progress payment?

WSIB clearance certificate Signup and view all the answers

How is a Schedule of Values (SOV) structured in a construction project?

A detailed breakdown of the total contract amount into line items with specific dollar amounts Signup and view all the answers

Which consequence may arise from failing to comply with WSIB registration requirements?

Penalties and legal consequences Signup and view all the answers

What is the significance of the WSIB compensation in case of workplace injuries?

It ensures workers receive support for lost wages and medical expenses Signup and view all the answers

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

To safeguard the owner against lien claims Signup and view all the answers

When is the statutory holdback returned to the contractor?

45 days after substantial completion is published Signup and view all the answers

What is required from a contractor for each progress payment?

A statutory declaration Signup and view all the answers

What defines substantial performance of a contract under the Construction Lien Act?

Work is ready for use or a substantial part is being utilized Signup and view all the answers

What percentage is typically held as a statutory holdback in construction contracts?

10% Signup and view all the answers

What is deficiency holdback?

An optional amount negotiated between owner and contractor Signup and view all the answers

How is the cost for correcting a known defect determined for substantial completion?

Percentages of the contract price depending on the amount Signup and view all the answers

What occurs if the contractor fails to settle lien claims against him?

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

Which document is NOT required for the General Contractor to receive progress payments?

Contractor Performance Evaluation Signup and view all the answers

What is the primary purpose of the MOL Form 1000 in Ontario?

To register constructors and employers engaged in construction Signup and view all the answers

Which of the following is a requirement for WSIB registration in Ontario?

Most employers are mandated by law to register Signup and view all the answers

What entity is responsible for overseeing labor-related matters such as occupational health and safety in Ontario?

Ministry of Labor, Immigration, Training and Skills Development Signup and view all the answers

Which of the following is NOT a document to be submitted to the Contract Administrator for progress payment approval?

Project Site Map Signup and view all the answers

When is the MOL Form 1000 required to be present at a construction site?

While the constructor/employer is actively working at the site Signup and view all the answers

What does WSIB stand for?

Workplace Safety and Insurance Board Signup and view all the answers

Which document provides a breakdown of the contract's budgeted costs?

Schedule of Values Signup and view all the answers

Study Notes

Lecture 7: Progress Payments

Lecture objectives include familiarizing students with start-up document requirements for progress payments, the Construction Lien Act and enabling students to successfully handle progress payments on construction job sites.
Essential documents for start-up, which must be prepared by the GC (general contractor) and submitted for approval, include
- 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

MOL Form 1000

In Ontario, the Ministry of Labour, Immigration, Training, and Skills Development (formerly Ministry of Labour) is responsible for labor-related affairs, including employment standards, occupational health and safety, and workers' rights.
Each contractor/employer in Ontario must complete MOL Form 1000, Registration of Constructors and Employers Engaged in Construction, and this form must be physically present at the project site.

Proof of WSIB Registration

WSIB stands for the Workplace Safety and Insurance Board.
WSIB registration is the process by which employers register with a government agency responsible for worker compensation and workplace safety and insurance in the province.
Registration process includes completing an online application or direct contact with WSIB
Compulsory in Ontario; required for safety and compensation to workers
Includes information such as business type, number of employees, the nature of work, and payroll details
Payment of premiums to WSIB, based on business type, industry, and payroll amounts, funds the workers' compensation system.
Requires an annual reconciliation statement and the relevant payroll information, including details for the annual premium payments
Compliance with health and safety regulations is paramount for preventing workplace accidents and injuries.

Schedule of Values (SOV)

A Schedule of Values (SOV) is a detailed breakdown of total contract amounts into individual line items/categories, each representing a portion of the work—for a given construction project.
Each detailed line item is associated with a dollar amount, representing the value/cost of each work/activity
Total Sum of all individual line items equals the total contract amount
SOV is used for billing, payment, budgeting, and cost control, as well as progress tracking and documentation of project costs.
Used to track the progress of the construction project, where different parts of the project are completed, in progress, or yet to start
Project stakeholders (contract administrator and contractor), use the SOV to manage progress, payments, and control costs.
If any changes to the scope of the project occur during the progress of the project, the SOV can be updated to reflect these changes
The schedule of values serves as a formal document, preventing disputes and misunderstandings arising in the construction project

Unit Prices/Unit Rates

Schedule of Values (SOV) used to calculate units (like doors, windows, pavement, etc.)
The total costs of labor, materials, equipment, and profit are included in the unit prices
These prices help owners effectively compare bids from varied contractors

Statutory Declaration

Statutory declaration—is a sworn affidavit usually made by the contractor.
Made in written format
Deponent/individual making the declaration says information is true and accurate
Legal action is a possibility, upon conviction, if the declaration is not done correctly
Required from contractors for progress payments as well as lien claim purposes
It's mandatory to provide this declaration from the 2nd progress payment onwards

Holdbacks

Holdback is money that the owner holds back from payments due to contractors according to their contract
Statutory holdback (10% of progress payment): required by the Construction Lien Act—to safeguard the owner from lien claims.
A separate holdback account is specifically for this money.
Release of the holdback: usually 45 days after the newspaper publication of substantial completion of the project; but not if a lien is still pending for the property
Deficiency holdback: optional, additional holdback negotiated between contractor and owner, above the 10%
Holdback is released to the contractor at a later stage when certain conditions are met

Substantial Completion

Substantial completion definition of a contract in reference to section 2 (1) of the Construction Lien Act
Indicates that the contract or the substantial portion of the contract is ready for use(or being used) based on its intended purpose
Calculation of Substantial Completion
- Based on the contract amount, with limits to defects (not more than 3% of the first 1 million, 2 percent of the next million and 1 percent of the remaining contract amount for the final calculation)
Certificate of Substantial Completion issued by the contract administrator after substantial completion of work
A published date is included in the substantial completion certificate to start a 45-day hold back or release of 10% statutory hold back.
Sets the start of the contract warranty period and stops possible liquidated damage liabilities

Progress Payments

Applications for progress payments are normally done monthly by the general contractor to the contract administrator
General contractors will consolidate invoices from trades, suppliers, etc., at the end of each month and submit for approval before progress payments can be made
Once approved, the owner issues a payment check, which is paid out directly to the required trades/suppliers by the general contractor.
Timeline to process progress payments approximately 30-45 days.

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Description

This quiz covers the essential requirements and documents necessary for handling progress payments in construction projects, as outlined in Lecture 7. It emphasizes the importance of compliance with the Construction Lien Act and the preparation of various start-up documents by general contractors.