Legal Talk: Modernizing your Construction Agreements

Agreements needs Modernizing TooBy: Andrew Prior, Shareholder, Pihl Law Corporation

Changes in technology, construction practices, and building codes are the primary focus of modernization within the construction industry.

However, companies should also take the time to periodically review their construction agreements to ensure the agreements: (a) are up to date on changes in the law; (b) reflect how the company expects a job to proceed; and (c) take into account lessons learned from past jobs or disputes.

Larger industry contracts typically have procedures in place to review and periodically incorporate changes in the law in a timely fashion. However, companies that draft their own contracts or modify templates often neglect this step.

The last ten years have seen important developments in areas that impact construction contracts. The obligation of good faith has been strengthened and may limit some clauses or conduct that used to be seen as standard within the industry. Due to a number of cases interpreting representations and warranties, the importance of precise contractual language has greatly increased.

As there have been many other changes in the past ten years, the failure to undertake a periodic review and revision process may mean a company is incurring significant unknown risk — risk that could have been avoided.

There is often a significant disconnect between how a company thinks an agreement is drafted and how a court is likely to interpret a given agreement. I have seen contracts that are entitled “Construction Management Agreement” yet have terms that are far more consistent with a head contract relationship.  Companies often attempt to contract out of the Builders Lien Act, but this is not allowed at law. More importantly, I often see deposit and billing clauses that are not followed in practice and would be burdensome for a company given their banking relationship or when and how they pay sub-trades or material suppliers. Yet failure to follow these clauses could be seen as a significant enough breach as to entitle an owner (or subcontractor) to terminate a contract. Some companies are giving away, in essence, free arguments if a dispute arises. Periodically reviewing your agreements to ensure you understand the procedures that apply can help with this risk.

Finally, when jobs go well it is understandable that a company pays little attention to the written agreement. Written contracts are often ignored on a well-run job site. However, well-written contracts provide the majority of their value on difficult job sites by managing and limiting the dispute and possible fallout from the dispute. However, regardless how well-written an agreement, situations can arise that were not anticipated by the company or by the contract and a company may learn some hard lessons from that dispute. A final reason for periodically updating your construction agreements is to take into account those lessons. Modifying an agreement from time to time allows a company to prevent those problems by relying on real world experience.

Every company — not just within the construction industry — will also have general business agreements that should be periodically reviewed and updated. For example, written employment contracts can minimize severance obligations. If an owner is thinking of selling the business or introducing new partners, the absence of written employment agreements may negatively impact the value of the business.

As business owners undertake steps to modernize construction practices and technology, consideration should also be given to seeking legal and accounting advice with respect to existing agreements and to take into account current and future strategic plans.

Andrew Prior, Shareholder, Pihl Law Corporation 


This article first appeared in the Spring 2017 issue of SICA's Construction Review Magazine. To read the entire magazine click here.

2018-SICA-Chair-Dinner-125.jpg
September 13, 2018

8th Annual Chair Dinner & Awards Celebrates Industry Leaders

SICA held our annual Chair Dinner and Award Night where we celebrate member anniversaries, board volunteers, Gold Seal recipients, and scholarship recipients. In addition, this year we had the honor of awarding both a Consultant Award and the Innovation Award.
Read More
IMG_9870.JPG
June 28, 2018

2018 Kamloops Trap & Skeet

Every year the Kamloops Trap & Skeet is one of the most anticipated events we host! With over 100 attendees, BBQ steaks, and some tough competition it is safe to say that a blast was had by all.
Read More
IMG_9545.JPG
June 27, 2018

2018 SICA Golf Tournament

On June 21st, 2018 144 golfers converged on Sunset Ranch Golf Course for the annual SICA Golf Tournament. Despite lightening in the valley causing a brief course closure and pouring down rain in the afternoon the event was a huge success!
Read More
IMG_9202.JPG
May 30, 2018

2nd Annual Family Fishing Derby

The beautiful Roche Lake Resort was again the site for our now 2nd annual Family Fishing Derby. This event, hosted through a joint partnership between the Southern Interior Construction Association and CapriCMW Insurance, is quickly becoming a must attend for all SICA members.
Read More
Terry-Brown-CCA-Award-1.jpg
April 30, 2018

Celebrating our Own - Terry Brown Receives CCA's Person of the Year Award

The CCA Person of the Year Award recognizes individuals who demonstrate the qualities of a leader and who apply the highest standards and principles of the construction industry and business community. To those who have had the opportunity of working alongside Terry Brown, he is the living embodiment of this description.
Read More
Heavy-Metal-Rocks-2018.JPG
April 24, 2018

10th Anniversary of Heavy Metal Rocks in Kamloops

2018 marked the 10th year of the Heavy Metal Rocks event in Kamloops. This project provides opportunities for Grade 11 and 12 students from the School District No. 73 to explore career opportunities in the heavy equipment operator field.
Read More
Kelowna-Construction-Breakfast-8.jpg
April 19, 2018

Construction Industry Celebrates BC Construction Month at Okanagan College

The Kelowna building community was proud to celebrate BC’s Construction & Skilled Trades Month with a breakfast held at Okanagan College on Thursday. In the newly built Trades Building contractors, apprentices, foundation program students and industry support organizations gathered to recognize the impact the construction industry has on the BC and specifically the Okanagan economy.
Read More
Brandon_TKI.png
March 07, 2018

Member Spotlight: TKI Construction

TKI recently completed construction on the flagship Mr. Lube store in Kelowna, where they went beyond your standard oil change facility and built a truly stunning building. Brandon had the opportunity to work with the Mr. Lube franchise owner to design a tower and architectural details that make the store more visually appealing than it would otherwise be.
Read More
BCCA Employee Benefits logo.JPG
February 07, 2018

Unsung Benefits

The BCCA Employee Benefits’ plans offer other services beyond dental and extended health care.
Read More
iStock-619508318.jpg
January 24, 2018

Message Delivered, Message Received

Successful buildings have always been the result of collaboration between the client, designers, and contractors. A strong team, clear expectations, and concise information will typically result in a project which all involved parties will consider successful. Through recent decades the delivery of projects has changed with increased complexity, decreased timeframes, and changing delivery methods. Now more than ever it is critical that the collaboration between the team occurs to ensure the desired outcome.
Read More
Panel_Image.jpg
January 03, 2018

All Parties at the Table | SICA CCO Workshop

The SICA CCO Workshop is designed to bring industry partners together to discuss everyday topics that effect everyone. It’s an opportunity to network, gain a better understanding of challenges faced by other parties, and to better understand the impact decisions have on others.
Read More
img-bdo.png
December 20, 2017

TAX ALERT – Government Simplifies Measures to Rein in Income Sprinkling

On December 13, the federal government released legislation to simplify restrictions on income sprinkling, proposed to go into effect January 1, 2018. These revisions indicate they’ve listened to feedback during the consultation period, by providing more certainty to taxpayers through the introduction of “bright-line” tests to automatically exclude some family members, and allow income sprinkling for those members who make sufficient contributions to the business.
Read More
8F - 2006 Mack Dump Truck.jpg
December 13, 2017

Member Spotlight: Ok Excavating

Adaptability, initiative, and customer service are the keys to longevity for a local commercial and residential excavation business in Kelowna. OK Excavating is celebrating 50 years of business in 2017 and, in those years, has undergone many evolutions.
Read More
7-1 BCCA Trish before.jpg
December 06, 2017

Employee Benefits are Your Secret Weapon when Life Gets Tough!

As a Client Services Associate with BCCA Employee Benefits, my job revolves around helping companies and their employees with their benefits. I know how important my work is, but when I started new jobs in the past, I often wondered whether the premiums were worth it. I am young and healthy, so is it worth the cost? I learned the true value of having employee benefits when, in a moment frozen in my mind, I heard the dreaded “c” word – cancer.
Read More
cyber-security-2851201_1920.jpg
November 29, 2017

Construction and Cyber Risk: An Overview

A hazard such as a fire has protocols and procedures that are designed to mitigate risks – inspections, suppression systems, and risk management practices. Cyber protection of a business should also employ a rigorous process to develop both a risk prevention and incident response plan. Most cyber insurance applications serve as a catalyst in moving towards this process.
Read More
calculator-1044173_1280.jpg
November 15, 2017

Could Tax Issues Throw Your Business Off Track?

To stay on track, real estate and construction companies should develop a better understanding of where tax issues are likely to complicate or disrupt their business — and develop a plan to mitigate those risks well in advance.
Read More
father-2090061_1920.jpg
November 08, 2017

Top Five Reasons for Having an Employee Benefits Plan

One of the biggest investments employers can make is in their employees. And it makes sense to want productive, healthy, and engaged employees. Employees with poor health cannot exert the effort required to be highly productive, and you need engaged employees in order to create innovative solutions.
Read More
courthouse-1799353_640.jpg
August 30, 2017

Obligation of Good Faith in Contracting

The Supreme Court of Canada changed the legal landscape for contracts in the decision of Bhasin v. Hrynew, [2014] SCC 71. This decision created a new common law obligation of good faith that applies to all commercial contracts.
Read More
write-593333_1920.jpg
August 23, 2017

Embracing the Purpose Era

Regardless of the size of your business or the sector you operate in, the purpose movement is shaking up the rules of business and ringing in a new era where business is an active participant in making the world a better place.
Read More
blueprints-1837238_1920.jpg
April 05, 2017

Reaching the Millennials | Attracting the right people is in how the story is told

With businesses adjusting to the era of the happy workplace, concepts such as social responsibility, company culture, and employee engagement are common buzz words used around the open-concept, flexible, shared workspace. They are used more so as companies shift their recruiting focus toward the millennials, the largest generation in the workforce today.
Read More