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March 19, 2012

CCA Conference Blog: The Changing Face of Construction Law

The Changing Face of Construction Law was one of the first topics tackled in a session on Monday, March 12th at the Canadian Construction Association annual conference in Savannah, Georgia.

Richard Shaban of Borden Ladner Gervais LLP was the moderator of the panel, with Yvan Houle, James W. Maclellan and John Melia also participating.

Yvan Houle started with “the changing face of friends with benefits.” He immediately addressed the charges of corruption in the Quebec construction industry and said the Quebec government has responded to public pressure with a series of measures to eliminate corruption.

Houle said statutory requirements are in place so that a license is issued only if a company can establish it is financially viable, that they have a licensing bond, and that they have not been found guilty of certain expressly defined infractions.

Directors must not be acting for someone else, and cannot have acted as directors of another corporation that was declared bankrupt.

Violations of these rules can lead to a repeal of the license.

People applying for licenses can also not be found guilty of an infraction to tax related statutes, or have a criminal offense related to construction industry activities. The test of the law is if the offense is related to those construction activities.

Bill 35, enacted in December 2011, has increased sanctions for license holders. License holders, shareholders, lenders and directors must all now disclose past offenses. Additionally, license will automatically be restricted where a corporation is found guilty of certain tax related offences.

In regard to bids, bidders must disclose communication they have had with competitors in preparation for their bids.

The next topic was Project Security. James MacLellan said certainty is the cornerstone of project security.

A Performance Guarantee is the standard instrument for security, and there are on-default instruments vs on demand.

Performance bonds are tied into the contract, and non-standard contract forms can create uncertainty around the bond.

Collateral contractual obligations include liquidated damages, loss of revenue related to delayed completion, loss of funding due to delayed completion and even a ‘key person’ provision.

The surety industry is responding with an enhanced performance bond, and there is a movement afoot to create P3 bonds.

The next topic was the changing face of tendering process. Moving to an electronic process will eliminate many delays and other old bottlenecks. Online transactions follow the familiar “paper process” but will be signed with digital signatures, and that information is encoded in the bond and can be verified and audited. There is no longer a need for a courier to deliver the bond as it will be delivered electronically.

The changing face of the Canada Revenue Agency was the final topic, which has a new mandate to collect every cent possible and not negotiate. This is an issue the Canadian Construction Association is aggressively getting in front of, Shaban said. ..dThere have been discussions to see if there is some way to introduce some measure that ensures balance and keeps rogue elements out of the mix. Michael Atkinson said that the ministry of revenue in Quebec has even stronger powers.

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