Completion issues

New B.C. Builders Lien Act provisions fail to create clarity
Monday, October 29, 2012
By J. Marc MacEwing

The British Columbia Builders Lien Act treats completion – whether it be substantial completion of a contract or subcontract or the completion of an improvement – as a critical trigger for the commencement of lien filing and holdback release periods. The current version of the act introduced new provisions that helped to clarify the criteria applicable to identifying the achievement of the completion milestone. However, those provisions did not end all uncertainty concerning the tests for completion and, in fact, gave rise to some new questions as to how they operate in relation to each other.

A recurring issue is the relationship between the “3-2-1” cost to complete formula provided in Section 1(2) for determining substantial completion of a head contract, contract or subcontract and the use or readiness for use for the purpose intended criterion provided in Section 1(3) for determining completion of an improvement or a substantial part of it.

Many people assume these provisions are intended to provide alternative means of determining completion for a given construction project. It is also often thought that a contractor should be entitled to the issuance of a certificate of completion at such time as the first of those milestones can be said to have been achieved. Those assumptions can cause conflict on a project if a contractor believes the owner or its consultant is inappropriately refusing to issue a certificate with the result that the release of holdback will be unjustifiably delayed.

Such problems arise from a mistaken interpretation of the completion provisions, which address the various possible scenarios arising from single head contract and multiple trade contract projects and construction for which no completion certificate is issued.

In particular, it appears from a close reading of the act that the completion criteria set out in Sections 1(2) and 1(3) are not interchangeable. Further, there is no provision in the act that indicates these sections are intended to apply according to the order of occurrence of the events that they anticipate.

To the contrary, Sections 8(2)(b) and 20(2)(b) indicate the only scenario in which completion of an improvement is relevant for the purposes of the act is when no certificate of completion is issued and there is no head contract. Only in this case is the status of the improvement to be taken into account in determining the applicable builders lien filing and holdback release periods.

This is consistent with the presumed policy interests of the Builders Lien Act. General contractors and subcontractors are typically keen to hasten the release of holdback. However, if substantial work remains to be carried out under a contract or subcontract, it is reasonable to assume the act intends to protect the potential lien rights of those performing that work rather than to cut short those rights if early use of the improvement intervenes.

Another common issue relates to the differences between the act’s substantial completion criteria and detailed additional requirements that are often set out in contracts for recognizing substantial performance of the work. The relationship between those provisions can run afoul of the expectations of the parties and complicate a payment certifier’s understanding of its duties. This is because of confusion between the operation of the statutory criteria for recognizing completion as a trigger for the lien filing and holdback release periods and contractual deliverables that relate to other considerations such as warranties, indemnities and payment.

The principles applicable to statutory versus contractual completion goalposts are set out in the Continuing Legal Education Society of B.C.’s British Columbia Builders Liens Practice Manual: “Construction contracts occasionally contain definitions for substantial performance or completion that vary from the one contained in the act. These may be used to calculate warranty and indemnity periods and for other contractual purposes but they do not override the act definition for lien purposes.”

This means only the criteria set out in the act should be applied to the determination of completion regarding the commencement of lien filing and holdback release periods, while differing contractual criteria are applicable specifically to contractual concerns. With respect to the basic contractual concern of payment, this apparently does not mean that a contractual defence to payment based on delayed or non-performance of contractual completion requirements will be overridden by the expiry of a holdback release period triggered by the act, since Section 8(4) provides that payment of a holdback may (not must) be made after expiry of the holdback.

Related to both of these issues is the interplay of builders lien and deficiency holdbacks. Holdback as security against a contractor’s repair of deficiencies is commonly retained separately from, and additional to, builders lien holdback, often in an amount that is double the estimated cost to repair. If deficiency holdback is not expressly provided for by contract, it may be implied as a standard construction trade practice.

The question arises whether or not the doubled repair estimate amount is to be included in the calculation of the cost to complete for the purposes of the “3-2-1” formula for determining completion of a contract or subcontract.

The answer is no. In the first place, the act makes no reference to deficiency holdback. Further, Section 1(2) refers only to the cost at which the work to be done is capable of completion or correction.

J. Marc MacEwing is an associate counsel with Shapiro Hankinson & Knutson Law Corp.

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