November 30, 2009

Canadian Construction Association releases HST bidding guidelines

RICHARD GILBERT

staff writer

The Canadian Construction Association (CCA) has produced a set of recommendations for its members in B.C. and Ontario on how to deal with transitional projects under the new Harmonized Sales Tax (HST).

Confusion has arisen over fixed price construction contracts that close prior to the announced effective date, but extend beyond that date. Both the Ontario and B.C. governments plan to harmonize their provincial sales tax (PST) with the federal Goods and Services Tax (GST) effective July 1, 2010.

In B.C., the HST will create a single combined sales tax rate of 12 per cent and in Ontario the HST will be 13 per cent.

“The standard contract terms are for GST extra, which is the current price plus five per cent” said sales tax advisor Carl Beck, who had some input on the recommendations.

“The HST will only apply for work performed after July 2010, so the new contract price should be HST or 12 per cent.”

The CCA produced the recommendations for members, as well as major federal government contracting authorities.

“Do not have GST or HST included in bid prices,” advises the CCA in a bulletin from its finance committee.

“In all cases, bidders should be told to submit bid prices exclusive of any value added taxes, (i.e. GST or HST), as is the current recommended industry practice”.

The next recommendation is that bidders shouldn’t be asked to identify the amount of GST or HST that applies to their bid price.

“Some bid forms, including CCDC, ask bidders to indicate the amount of GST that applies to their bid price,” said the CCA new bulletin.

“For transitional projects this could lead to unnecessary confusion, especially given the different timing rules that apply to progress payments and holdbacks.”

Finally, the CCA recommends that clear instructions be given in the bid document to direct bidders to bid based upon the transition to HST, as announced.

“This eliminates the need to seek a credit since any cost savings arising from the move away from a PST to the HST will have been factored into the bid prices, as part of the normal competitive bid process,” said the bulletin.

“Should the transition not occur, the contractor would then be entitled, under the CCDC contract language, to recover the additional costs it incurred due to the transition to the harmonized HST and the elimination of the PST not occurring as announced.”

The CCA prefers this option because it avoids having to deal with credits for the elimination of the PST and assumes the transition will occur.

One of the main considerations with this option is there may be a need to adjust fixed priced contracts to deal with post-bid changes in applicable taxes.

“The problem is that the contract price includes the contractor’s price of PST on materials,” explained Beck. “This creates an opportunity in the obligation for contractor to change the contract by the amount of PST saving on material.”

In response, the CCA argues that the “extra or credit” received by the contractor is the amount of any increase or decrease in costs to the contractor due to post-bid changes in taxes.

It is not the amount of PST content in the contract price.

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