When GC 16.2 was written, it was conventional practice for the Contractor to obtain and pay for the building permits. It has since become common practice in many jurisdictions for the Owner or the Consultant to apply and pay for the building permit before or while putting the work out for bids. In such jurisdictions, each bidder needs to know whether or not to include the costs of plan examination and the building permit in his bid price.

Other fees and charges have been introduced that were not anticipated when GC 16.2
was written. These include:

• development charges
• other plan examination fees.

Such fees are conventionally paid by the Owner, but the Owner may require the
Contractor to pay them. Bidders need to know which it is to be.

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It also seeks to maintain a philosophy and approach which serves and protects the interests of not only the contracting parties but also all those involved in the construction contracting process. In order to achieve these goals, periodic reviews of standard documents are essential, as well as timely and necessary revisions where changing industry practices, court decisions or other pertinent developments so dictate. The Committee recognizes, however, that a standard form cannot be the subject of constant
and frequent revision. The publication of a revised version of an existing CCDC form cannot be the subject of constant and frequent revision. The publication of a revised version of an existing CCDC form or a new document to replace an older edition is therefore an important and serious step as it renders previous editions obsolete.

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1. Introduction of subject matter already addressed in the text of the standard form which may cause conflict and/or uncertainty.

2. Introduction of subject matter more appropriately dealt with (e.g.) In the Instructions to Bidders, the technical specifications or the General Requirements (Division 1).

3. New or replacement wordings which are clearly designed to undermine the fundamental nature of the CCDC Standard Contract Forms or the equitable balance of rights and obligations of each party.

4. Variations which do no more than re-state or paraphrase the standard text, in the
author’s own words.

If, due to particular circumstances, it becomes necessary to modify the text of a CCDC Standard Contract Form for the use in a specific instance, the appropriate method of effecting such modifications is by the use of supplementary conditions. In this regard,however, the Committee wishes to re-affirm the following statement which appears in the Introduction to CCDC 20 ‘A Guide to the Use of CCDC 2’:
“CCDC Contracts are an accumulation of the experience, thought, and talent of architects, engineers, owners, contractors, and sub-contractors.They and others have been ably assisted by legal counsel and insurance and surety advisors, and there is a long history of judicial precedents based on the language used in the document. Persons intending to substitute their own provisions for those in the printed CCDC documents should obtain expert advice. Modifications may cause the Owner, Consultant, Contractor, or Subcontractor to unintentionally assume unnecessary or inappropriate responsibilities or risks. Furthermore,
modifications may weaken the relationships among the document’s provisions or between the documents and the other project agreements with which it should be coordinated.”

The Committee directs industry participants to CCDC 20 ‘A Guide to the Use of CCDC 2’and CCDC 24 ‘A Guide to Model Forms and Support Documents’. The Committee does not endorse supplementary conditions prepared by other parties. However, the Committee appreciates that certain Owners or market sectors, as a matter of public policy, local conditions, or project-specific particulars, may with legitimacy seek to amend or customize a CCDC Standard Contract Form.

The Committee issues these precautions to the four concerns above:

1. The CCDC Standard Contract Forms General Conditions, Definitions and Agreements are interrelated. Before introducing any new or amended subject matter, it would be prudent to ensure that the subject is not already addressed.

2. Experienced industry participants anticipate, and conduct their business operations based upon, familiar document structures, with clearly separated (but integrated) components. Changing that order may introduce confusion and increased costs of document preparation, bidding and contracting.

3. A biased, inherently one-sided form of construction contract would likely deter most contracting parties; minimize (if not eliminate) competition, especially from those who are more experienced, qualified and aware; change the balance of risk; increase costs; and be difficult for any Consultant to administer fairly and professionally. Furthermore, such a contract may be unlikely to be upheld if tested in court.

4. Altering the standard wordings presents a variety of risks in addition to those already noted above, and chiefly because the CCDC Standard Contract Forms have:

(a) compatibility with the standard wordings, roles, and responsibilities of such critically interrelated industry documents as agreements between Clients (Owners) and Architects or Engineers; construction subcontracts; and construction administration forms;

(b) compatibility with standard wordings, terms and forms of industry acknowledged insurance policies and surety bonds; and, especially

(c) an accumulated history of use and interpretation by the courts.

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‘13 .2       Applications for payment shall be dated the last day of the agreed monthly payment period and the amount claimed shall be for the value, proportionate to the amount of the Contract, of work performed and products delivered to the Place of the Work at that date.’

The Committee wishes to clarify the reference to the ‘last day of the agreed monthly payment period’. It is intended in GC 13.2 that the ‘last day of the agreed monthly payment period’ can be any day and need not be the last day of a calendar month.

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CCDC documents produced after 1991 refer to theses taxes collectively as Value Added Taxes and define them as follows in CCDC 18 (2001):

Value Added Taxes
Value Added Taxes means such sum as shall be levied upon the Contract Price by the Federal or any Provincial or Territorial Government and is computed as a percentage of the Contract Price and includes the Goods and Services Tax, the Quebec Sales Tax, the Harmonized Sales Tax, and any similar tax, the collection and payment of which is by the Contractor as imposed by the tax legislation.

Since the introduction of the Value Added Taxes, two CCDC contract forms have been revised (“CCDC 2 Stipulated Price Contract” and “CCDC 3 Cost Plus Contract”) and a new contract, (“CCDC 18 Civil Works Contract”) has been developed. All three state that the Contract Price excludes the Value Added Taxes, but that the Owner has to pay to the Contractor the Value Added Taxes in addition to the Contract Price.

“CCDC 4 – 1982, Unit Price Contract”, which was issued before the introduction of the Value Added Taxes, is therefore mute on how to deal with the Value Added Taxes. CCDC recommends to users of the “CCDC 4 (1982) , Unit Price Contract” form that value added taxes be addressed in the same manner as the CCDC documents produced since 1991. It should be stated in an amendment to the standard CCDC – 4 document, that the Contract Price does not include Value Added Taxes, and that the total amount that the Owner has to pay to the Contractor is made up of both the Contract Price and the Value Added Taxes. Bidding forms to be used in conjunction with Unit Price Contracts should be designed to indicate that the bidders are required to submit bid prices which exclude the Value Added Taxes. All this information should be supplied in the Instructions to Bidders. (CCDC bulletins are products of a consensus-building process aimed at balancing the interests of all parties on the construction project. They reflect recommended industry practices. Readers are cautioned that CCDC bulletins do not deal with any specific fact situation or circumstance. CCDC bulletins do not constitute legal or other professional advice. The CCDC and its constituent member organizations do not accept any responsibility or liability for loss or damage which may b e suffered as a result of the use and interpretation of these bulletins.)

CCDC recommends that “CCDC 4 (1982) – Unit Price Contract” be amended to address Value Added Taxes by the addition of a page to the contract form that would read as follows:

AMENDMENT TO “Standard Construction Document CCDC 4 – 1982 Unit Price Contract”

to be used with the Work titled: _____________________________________________________________ (insert above the name of the Work which is to be governed by the amended version of CCDC – 4)

In the DEFINITIONS section of the document, add definition 17, to read:

17. Value Added Taxes Value Added Taxes means such sum as shall be levied upon the Contract Price by the Federal or any Provincial or Territorial Government and is computed as a percentage of the Contract Price and includes the Goods and Services Tax, the Quebec Sales Tax, the Harmonized Sales Tax, and any similar tax, the collection and payment of which is by the Contractor as imposed by the tax legislation.

In the GENERAL CONDITIONS section of the document, delete all three paragraphs of GC 15 TAXES AND DUTIES and replace by:

GC 15 TAXES AND DUTIES
15.1 The Contract Price and all the Contract Unit Prices indicated in Article A-3 CONTRACT PRICE shall include all taxes and custom duties in effect at the time of the bid closing except for Value Added Taxes which, in addition to the CONTRACT PRICE, are payable by the Owner to the Contractor.

15.2 Any increase or decrease in costs to the Contractor due to changes in such included taxes and custom duties after the time of bid closing shall increase or decrease the Contract Price and the Contract Unit Prices accordingly.

15.3 Where an exemption or recovery of taxes or custom duties is applicable to the Contract, the procedure shall be as established in the Supplementary Conditions.

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Existing federal and provincial legislation and regulations address the environmental concerns associated with handling, transportation and disposal of waste materials including toxic or hazardous substances.

CCDC contract forms issued after 1994 (e.g. CCDC 2 (1994) – Stipulated Price Contract, CCDC 3 (1998) – Cost Plus Contract, CCDC 18 (2001) – Civil Works Contract) outline the contractual protocols to be followed when toxic or hazardous substances are encountered and therefore require no modification. However, CCDC 4 (1982) does not specifically address this subject. As such, the Committee recommends that the following provisions be incorporated into all CCDC 4 (1982) –  contract forms by Supplementary Condition.

ADD the following General Condition entitled TOXIC AND HAZARDOUS SUBSTANCES as a Supplementary General Condition:

1. Toxic or Hazardous Substances

1.1 Prior to the Contractor commencing the Work, the Owner shall, subject to the labour regulations at the Place of the Work (a) take all reasonable steps to determine whether any toxic or hazardous substances are present at the Place of the Work, and (b) provide the Consultant and the Contractor with a written list of any such substances that are known to exist and their locations.

1.2 The Owner shall take all reasonable steps to ensure that no person’s exposure to any toxic or hazardous substance exceeds the time-weighted levels prescribed by labour regulations at the Place of the Work and that no property is injured or destroyed as a result of exposure to, or the presence of, toxic or hazardous substances which were at the Place of the Work prior to the Contractor commencing the Work.

1.3 Unless the Contract expressly provides otherwise, the Owner shall be responsible for taking all necessary steps, in accordance with legal requirements, to dispose of, store or otherwise render harmless toxic or hazardous substances which were present at the Place of the Work prior to the Contractor commencing the Work.

1.4 If the Contractor

(a) encounters toxic or hazardous substances at the Place of the Work, or

(b) has reasonable grounds to believe that toxic or hazardous substances are present at the Place of the Work,

which were not disclosed by the Owner, as required under paragraph 1.1, or which were disclosed but have not been dealt with as required under paragraph

1.3, the Contractor shall

(c) take all reasonable steps, including stopping the Work, to ensure that no person’s exposure to any toxic or hazardous substance exceeds the time-weighted levels prescribed by labour regulations at the Place of the Work and that no property is injured or destroyed as a result of exposure to or the presence of the substances, and

(d) immediately report the circumstances to the Consultant and the Owner in writing. 1.5 If the Contractor is delayed in performing the Work or incurs additional costs as a result of taking steps required under paragraph 1.4(c), the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor and the Contractor shall be reimbursed for reasonable costs incurred as a result of the delay and as a result of taking those steps.

1.6 Notwithstanding GC 3.6, GC 3.7 or GC 7.1, the Consultant may select and rely upon the advice of an independent expert in a dispute under paragraph 1.5 and, in that event, the expert shall be deemed to have been jointly retained by the Owner and the Contractor and shall be jointly paid by them.

1.7 The Owner shall indemnify and hold harmless the Contractor, the Consultant, their agents and employees, from and against claims, demands, losses, costs, damages, actions, suits, or proceedings arising out of or resulting from exposure to, or the presence of, toxic or hazardous substances in excess of the timeweighted levels prescribed by labour regulations at the Place of the Work which were at the Place of the Work prior to the Contractor commencing the Work.

This obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity set out in GC 19 – INDEMNIFICATION or which otherwise exist respecting a person or party described in this paragraph.

1.8 Notwithstanding GC 1 – DOCUMENTS, paragraph 1.6, in the event of conflict between the provisions of this Supplementary General Condition and ARTICLE A-5 RIGHTS AND REMEDIES, paragraph (a), or GC 22 – DAMAGES AND MUTUAL RESPONSIBILITY, the provisions of this Supplementary General Condition shall govern.

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Partnering is basically an approach to establishing common goals, and to implement construction projects by building trust and respect between the participants in the process. It should not be confused with joint ventures, nor with legal arrangements between partners in a partnership. It is a process whereby the participants (owners, consultants, sub-consultants, prime contractors and subcontractors) establish mutually acceptable working relationships aimed at improving communications and solving problems and disputes during the work. The Contract establishes the legal relationships, the Partnering Agreement identifies the participants’ commitment to work together towards the successful completion of the project.

Following facilitated work sessions, the parties involved issue a ‘charter’ which indicates the needs, responsibilities and objectives of all participants, and declares a commitment to open communication, trust, and co-operation in meeting the requirements of the project.

The benefits to participants in the partnering process can include reductions in decision times, reduced risk of cost and schedule overruns, reduced administrative costs, and less risk of disagreements regarding contract interpretations. In addition, the process may produce less tangible benefits which make the progress of the works smoother and more efficient, i.e., better project team morale, more effective project management activities, and the knowledge that person-to-person alternate dispute resolution processes could enable differences to be resolved without recourse to expensive formal litigation.

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These ADR processes, i.e. negotiation, mediation and arbitration, do not negate or absolve the consultant from any of the responsibilities and obligations traditionally associated with the administration, interpretation and findings with respect to owner/contractor agreements. In the event of a dispute arising from the Consultant’s finding, the parties will initially attempt to resolve the matter by negotiation. Should these negotiations fail, mediation and possibly arbitration processes are implemented.

Mediation – Both parties should mutually attempt to select a mediator within the time limits specified in the contract. If the two parties cannot agree on the choice, a mediator may be named by the Arbitration and Mediation Institute of Canada, or one of its regional affiliates e.g. the Québec Institute of Mediation and Arbitration, the British Columbia International Commercial Arbitration Centre, or other similar organizations. If these nomination processes are not acceptable, the parties may make application for a court to nominate a mediator. Usually, the Arbitration and Mediation Institute of Canada will endeavour to negotiate with the parties to provide a nominee acceptable to both. The parties jointly agree to a schedule for the mediation hearing, and both share equally the procedural costs involved.

There are certain standard procedures used in the mediation process, e.g. the mediator meeting with both sides individually and on a “without prejudice” basis prior to joint discussions; and following the process, he/she might be able to suggest a settlement, and consequently assist the parties to resolve the dispute amicably. If one or both parties do not accept the mediation, either party may withdraw and elect to invoke binding arbitration. It should be noted that if the dispute goes to a subsequent proceeding, the mediator can neither represent nor testify on behalf of either party.

Arbitration – As with selection of the mediator, the choice of an arbitrator or an arbitration panel can be mutually agreed between the parties, or assisted by the Arbitration and Mediation Institute of Canada or one of its regional affiliates. The costs are established by the arbitrator. The procedures now become more formal than mediation. Statements of claim and defence are exchanged via the arbitrator and a date is established for the formal hearing. Information exchange takes place based on the receipt and consideration of the other parties’ position, and this also occurs prior to the hearing. Unlike the less formal process of mediation, the arbitrator does not discuss the case individually with either of the parties prior to the hearing. During the arbitration hearing, both parties have the right to present evidence, and to introduce witnesses for substantiation in support of their positions.

Following the hearing, the arbitration award is announced, and the award is binding upon both parties. There are some limited circumstances in which the decision rendered or the process undertaken could be questioned by one or both parties, and which would be accepted by the courts as grounds for an appeal. If such a circumstance occurs, an appeal may be made by either party to litigation, but it should be noted that the same principle of non-representation in the legal proceedings applies to the arbitrator, as previously applied to the mediator.

For additional information, refer to CCDC 40 ‘Rules for Mediation and Arbitration of Construction Disputes’.

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The construction industry has moved towards other forms of dispute resolution, and the CCDC is now (since 1994) issuing contracts which contain provisions for mediation and arbitration. It is foreseen that the use of these forms of dispute resolution will allow speedy, economical alternatives to the traditional legal process.

It must be emphasized that the inclusion in contracts of provisions for mediation and arbitration does not abrogate or remove the Consultant’s responsibilities in the management of the contract, nor in the assumption of obligations related to the interpretation of the agreement between the parties. The CCDC foresees the use of experienced construction mediators and arbitrators as being supplementary to the Consultant’s administrative and adjudicatory duties, and these additional services will be utilized only if the parties to the contract formally disagree with the Consultant’s finding(s) regarding any or all disputes. Once the mediation and/or the arbitration process is underway, the Consultant will be expected to offer full co-operation, knowledge and assistance in the dispute resolution process.

For further information, please refer to CCDC 40, “Rules for Mediation and Arbitration of Construction Disputes”.

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Purpose
A construction warranty:
• protects the Owner against defects or failures within the warranty period;
• provides a remedy to the Owner for non-conformance with the Contract discovered prior to or after Substantial Performance of the Work ;
• gives the Owner recourse against other parties (e.g. manufacturers, subcontractors, and suppliers) who may not be in a direct contractual relationship with the Owner but who provide extended warranties directly; and
• defines the responsibilities of all parties regarding the coverage of the warranty.

Construction Warranties
The overall warranty period for the Work under CCDC contracts is one year from the date of Substantial Performance of the Work. The Contractor is responsible to correct at his/her own expense, defects or deficiencies in the Work which appear during the oneyear warranty period.

Warranties for longer than one year (i.e. extended warranties) may be specified for certain Products (Product warranties) or portions of Work (system warranties) in the specification sections of the Contract Documents.

Extended warranties are typically of two types:
• Product warranties covering replacement of the Product; and
• System warranties covering replacement of the Product and the entire installation (e.g. roofing systems, glazing systems, mechanical or electrical systems).

Extended Product Warranties
Extended warranties for the replacement of Products offered by product manufacturers usually only cover the Product, not the transportation, removal of the failed Product, reinstallation of its replacement or any associated labour costs. For example, a carpet manufacturer may warrant that its product will not zipper or edge ravel for a period of 10 years from date of installation. If this carpet fails to perform as warranted, the manufacturer’s responsibility is usually limited to the supply of replacement product and will not include the removal of the existing carpet, installation of the new carpet or such incidental costs as moving of furniture. CCDC contracts stipulate that the Contractor’s responsibility with regard to extended Product warranties is limited to obtaining the extended warranty documentation on the Owner’s behalf from the manufacturer or supplier (warrantor). The extended Product warranty documentation is to be issued by the manufacturer or supplier to the benefit of the Owner.

Extended System Warranties
Extended system warranties cover the supply and installation of a component or group of components. These extended warranties are normally offered by manufacturers and cover components typically installed by a Subcontractor approved by the manufacturer. Extended system warranties usually contain restrictive provisions which significantly limit the warrantor’s liability and the Owner’s recourse in the event of a failure. For example, a manufacturer’s inverted roof system warranty may cover the cost of repairing leaks which occur as a result of defects in their roof system components or defects in installation for a period of 5 years from the date of Substantial Performance. Should a leak develop in the system, the manufacturer’s responsibility normally would not include the costs for removal and reinstallation of roof top landscaping materials or the costs associated with repair of interior finishes damaged as a result of the roof leak. The warranty could require the payment of a fee by the Owner and may state that any claims under the terms of the warranty be made within a very restrictive time period. As with extended Product warranties, extended system warranties are obtained by the Contractor from the warrantor and issued by the warrantor to the benefit of the Owner.

Benefits
There are immediate benefits that can be gained from an equitable extended warranty that may make it worth the extra cost to the Owner. These benefits include the prequalification of the installer by the manufacturer, the manufacturer’s involvement in the construction process, and the extended protection against failure. For the extended warranties to be effective, the warrantor must be financially secure to cover its potential liability.

Limitations
Extended warranties are not all-inclusive insurance policies designed to cover any problem regardless of circumstance. Since these warranties are normally written by the manufacturer, from the manufacturer’s perspective, they invariably contain language that limits the scope of coverage. Extended warranties usually exclude consequential and incidental damage to any building component other than the warranted Product or system itself. Even the most comprehensive extended warranties that cover material and workmanship, generally provide that the warrantor will only repair faults that result from specific causes enumerated in the warranty.

Warranties should be carefully read to determine exactly what is covered and what is excluded. The exclusions and limitations are very important.

Specifying Extended Warranties
The Consultant should be familiar with standard warranties offered for specified Products and systems as well as the physical qualities and performance characteristics of the products. The size, stability and reputation of the manufacturer and its ability to make good on a warranty claim may be more important than the terms of the warranty itself.

When specifying warranties the Consultant should avoid:
• relying on a warranty as a substitute for a thorough investigation of a Product or system and an assessment of its manufacturer; and
• requiring warranty coverage that is not available for a particular Product or system.

The Consultant should determine before producing the specifications:
• whether extended warranties are offered or available;
• the standard terms and conditions of extended warranties;
• whether the terms of standard extended warranties are negotiable;
• whether other terms can be specified;
• the cost associated with provision of the extended warranty; and
• whether the Owner will receive a cost-effective benefit from an extended warranty.

The best assurance of long-term performance is a combination of good, rigorously tested materials and system; appropriate design; and skillful workmanship. No warranty can adequately compensate for the lack of these key elements.

References
1. CCDC 20, a guide to the use of CCDC 2 (1994) – stipulated price contract.
2. Construction Specifications Canada, Registered Specification Writer Level 2 Home Study Course.
3. Construction Specifications Canada, Construction Specifications Handbook.

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Definitions
WARRANTY: a two party agreement which provides an assurance by a seller of goods, e.g. the contractor (warrantor), to a purchaser, e.g. the owner, that the warrantor will assume stipulated responsibilities for correction of defects in the goods within a stated period of time.

GUARANTY: a three party agreement in which the third party, e.g. a surety (guarantor), guarantees the performance of an obligation to the second party, e.g. the owner (obligee), in the event of default of the first party, e.g. the contractor or manufacturer (principal).

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The Committee wishes to encourage bid calling authorities to provide only the most definite closing time and cautions them that phrases such as those listed above may also leave them open to criticism or complaint.

The CCDC believes that the use of the word “before” in conjunction with the time stated in hours, minutes and seconds confirms that when the time shifts to the hour and minute stated the bidding period has closed. Any bid submitted, stamped or noted at that time or later times is late. It is equally important to indicate the timepiece upon which the bid calling authority will rely rather than some abstract “real time” that any other authority may offer.

Therefore, the CCDC believes the following offers improved clarity and certainty as to the interpretation of the close of the bidding period.

   “… bids will be received before [hour:minute:second a.m./p.m.- e.g. 3:00:00 p.m.] local time as designated by the [designation of timepiece to be used] on the [date] day of [month], [year].”

Accordingly, a bid received (e.g.) “at the stroke of 3:00:00 p.m.” or while “3:00” is showing for 60 seconds on a digital clock, or afterwards, is late and must be rejected. Absolute accuracy of the designated timepiece is not critical. It is essential, however, that the bid calling authority calibrate (and not re-set) the timepiece no later than 24 hours ahead of bid closing time and bidders synchronize their submissions accordingly.

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Indemnification and hold harmless provisions are obligations we see in most contracts. To indemnify means to compensate. An indemnification provision is an obligation by one party to reimburse the financial loss of another party upon the happening of specified types of loss. To hold harmless means to hold another party harmless from financial loss. A hold harmless provision is an obligation to pay the liability on behalf of another party upon the happening of specified types of loss.

When triggered in a loss situation, one party becomes the indemnitor and the other party becomes the indemnitee. The “indemnitor” is the party that is obligated to reimburse or compensate the “indemnitee” for financial loss incurred by the indemnitee upon the happening of an event or a particular set of circumstances.

The parties affected by such provisions are not limited to owners and contractors, depending on the hierarchy of the contracting parties, they can include:

• General Contractor as indemnitor to project Owner, the indemnitee;
• Subcontractor as indemnitor to General Contractor, the indemnitee;
• Consultant or Design-Builder as indemnitor to Owner, the indemnitee;
• Consultant or Design-Builder as indemnitor to General Contractor, the indemnitee.

This descending order is the usual pattern in construction contracts as risk is often transferred downward from the party using its form of contract and doing the hiring. For the ease of reading this bulletin the party doing the hiring will be referred to as the owner and the party that supplies the services to the owner will be referred to as the contractor.

There are different forms of indemnification and hold harmless provisions:

• Reciprocal (or mutual) – this is a contractual obligation made by both parties in the contract to agree to indemnify and hold each other harmless from financial loss caused by the other party; they are considered the most fair and are used in the CCDC contracts.
• One-way (or broad form) – this is a contractual obligation often given to an owner by a contractor for financial loss incurred by the owner caused by the contractor or by its subcontractors and suppliers; it effectively absolves the owner of liability and costs arising out of the contractor’s activities even if the contractor was not negligent.
• Intermediate – this is a contractual obligation given by the contractor to the owner for all but the owner’s sole negligence; in other words, the contractor is obligated to compensate the owner for financial loss incurred by the owner even if largely caused by the owner.

The purpose of this bulletin is to emphasize the concerns of the “one-way” and “intermediate” forms of indemnification and hold harmless contractual obligations and the importance of all parties understanding the consequences of agreeing to such onerous provisions.

Following is an example of a reciprocal indemnification provision from CCDC 2:

“Without restricting the parties’ obligation to indemnify as described in paragraphs 12.1.4 and 12.1.5, the Owner and the Contractor shall each indemnify and hold harmless the other from and against all claims, demands, losses, costs, damages, actions, suits, or proceedings whether in respect to losses suffered by them or in respect to claims by third parties that arise out of, or are attributable in any respect to their involvement as parties to this Contract, provided…”

Following is an example of a “one-way” indemnification provision:

“The Contractor shall indemnify and hold harmless the Owner, its employees, and agents from and against any and all claims, losses, damages, liabilities, costs and expenses (including reasonable legal fees) which may result from the Contractor’s performance of the Contract.”

Following is an example of an “intermediate” indemnification provision:

“The Contractor shall indemnify and hold harmless the Owner, its employees, and agents from and against any and all claims, losses, damages, liabilities, costs and expenses (including reasonable legal fees) which may result from the Contractor’s performance of the Contract, save and except for those claims, losses, damages, liabilities, costs and expenses which result from the sole negligence of the Owner.”

“The Contractor’s indemnity obligations shall apply regardless of whether the party to be indemnified was concurrently negligent or whether actively or passively, excepting only where the injury, loss or damage was caused solely by the negligence or willful misconduct of, or by defects in design furnished by, the party to be indemnified. The Contractor’s defense and indemnity obligations shall include the duty to reimburse any legal fees and expenses incurred by the Owner for legal action to enforce the Contractor’s indemnity obligations.”

Indemnification provisions set the parameters for risk transfer within a contract and can vary from reasonable risk transfer within the confines of tort law to those that make the indemnitor responsible for any and all loss, or for damages howsoever caused, even for the acts of the indemnitee or from guaranteeing a supplier’s product will be free from defect in design and fit for its intended purpose.

If a standard CCDC indemnification provision has been modified or replaced by supplementary conditions as often happens with tenders, professional advice should be obtained. It is important that your insurance and legal representatives, preferably experienced in construction insurance and construction law, review the insurance and indemnification provisions prior to signing a contract or submitting a bid that includes a sample contract. Clauses that are unfair or uninsurable can sometimes be negotiated; clauses that are unclear should be clarified to avoid possible subsequent disputes resulting in costly litigation.

The case of Greater Vancouver Water District (GVWD) v. North American Pipe & Steel Ltd. (North American) that made it all the way to the Court of Appeal for British Columbia is an excellent example of assumed risk. North American entered into a contract with GVWD to supply water pipes for two projects in Vancouver. GVWD specified the type of pipe and how it was to be protectively coated. The pipe proved to be defective. Initially, GVWD sued North American for damages, with North American counterclaiming for the costs of supplying the pipe. The trial judge stated the defects caused by an owner’s specs are not the responsibility of the contractor, unless the contractor guarantees fitness for a specific purpose, or a warranty can be implied by the owner’s reliance on the contractor’s skill and judgment. GVWD’s claim was dismissed and judgment was granted in the amount of $3,899,857.01 on North American’s counterclaim.

GVWD appealed the decision. In the contract, North American warranted that the goods “will conform to all applicable Specifications…and, unless otherwise specified, will be fit for the purpose for which they are to be used,” and “The Supply Contractor warrants and guarantees that the Goods are free from all defects arising at any time from faulty design in any part of the Goods.” The B.C. Court of Appeal decided that because North American guaranteed the pipes would not have any defects arising from faulty design and the pipes had defects arising from faulty design, North American was liable. North American’s judgement of its counterclaim for the costs of supplying the pipe was over-ruled.

Such onerous indemnification provisions can create liability for the contractor where none existed at law in the absence of the contractual obligation and can extend liability beyond the scope of commercially available insurance causing financial hardship to both parties. The Commercial General Liability (CGL) insurance coverage is intended to pay those sums the contractor becomes legally obligated to pay due to bodily injury or property damage claims advanced against the contractor by third parties arising from the contractor performing its services.

Sometimes a contract or supplementary condition to a contract may contain wording that requires the full wording of the indemnification provision to be endorsed to the CGL. Insurers will not do this because they are not privy to the contract.

Those who insist on imposing such onerous provisions may deter some bidders from bidding on their projects or contractors from working on their projects. Bidders and contractors may also increase their pricing to pay for the additional insurance costs or to fund potential uninsured losses. They can also cause hardship to the owner because the party to be indemnified can only rely upon the indemnification provision to the extent that the contractor has the financial capacity and/or insurance coverage to actually fulfil the obligation in the event of a loss. While the use of the contractor’s CGL insurance coverage with additional insured status for the owner improves financial security to the owner, this insurance protection is limited and subject to the insurance policy exclusions and definitions. For example, an agreement to indemnify for loss or damage caused by pollution or operation of a watercraft will have little or no value because the CGL provides very limited coverage for pollution and watercraft where not purchased separately.

Periodically the Canadian CGL policy wording goes through substantial changes, with the last two major revisions taking place in 1987 and 2005. In the 1987 version, coverage was provided wherein the named insured could assume under contract, the complete tort liability of someone else such as a subcontractor or an owner. In the 2005 version, this was restricted so that the loss had to be caused in whole or in part by the named insured or those acting on its behalf. In other words, no longer does the named insured have much broader coverage for liability they assume in a contract as compared to what they would be responsible for in common law.

The current IBC 2100 CGL also addresses defense costs available to any entities which the contractor agrees to indemnify within the definition of insured contract. This feature would apply only to those indemnitees as set out in the insured contract that have not been added as an additional insured as they also benefit from some limited coverage under the contractual liability provisions of the CGL, despite not being an additional insured. Unlike the additional insured, these “un-named” indemnitees are only extended defense and indemnification to the point that the applicable limits of the policy have been reached, whether by judgment or settlement and are always subject to the policy terms and conditions.

The contractual liability coverage is provided only to the named insured and not others such as additional insureds. This is why an indemnitee, relying on additional insured status on someone else’s insurance policy, instead of having their own sound insurance program, has no coverage for liabilities they have assumed under contract. They will have coverage only for their negligent acts and/or vicarious liability. If the pleadings in an action allege independent negligent acts of the named insured and additional insured, that additional insured status may be in jeopardy. This is why additional insureds should not rely on someone else’s policy.

If the parties to a contract do not obtain insurance and legal advice prior to signing a contract or bidding on a project, the end result may be uninsurable payouts potentially causing insolvency of the indemnitor which could result in serious financial loss to the indemnitee. All parties need to be aware of the impacts and consequences of non-standard contracts or CCDC standard contracts amended by supplementary conditions. Contractors should seek advice and determine if they need to mitigate the additional uninsured risk imposed by indemnification provisions, increase their tender price to fund for the uninsured risk, or not bid the project.

Owners should seek advice and determine if their indemnification provisions are insurable and valid at law to avoid their uninsured risk resulting in serious financial loss.

Download Bulletin 20 – Part I (PDF)

Many contracts require third parties to be included under a Commercial General Liability (CGL) policy as an “additional insured”. Insurers respond by using additional insured endorsements in varying shapes and forms, which do not always achieve what is required in a contract. For example, some insurers intend to provide coverage to additional insureds for defence costs only, and others for liability arising out of vicarious liability1. The phrase most often used by the insurance industry on an additional insured endorsement or on a Certificate of Insurance is “ABC Company is added as an Additional Insured but only with respect to the operations of the Named Insured”.

Many CCDC contracts require a contractor’s CGL policy to include the consultant and owner as additional insureds. CCDC 2 and 5B require the contractor to add the consultant and owner as additional insureds, but not for losses arising out of the consultant’s or owner’s “sole negligence”, meaning that the contractor’s policy does not have to respond if the injury or damage resulted only from the negligence of the consultant or owner. For example, if a consultant’s employee leaves his briefcase on the steps of his employer’s trailer and a visitor, while exiting the trailer, steps on the briefcase, falls, and is injured, the loss has arisen from the sole negligence of the consultant’s employee. The consultant’s own CGL and not the contractor’s CGL should respond in this situation. CCDC 14 does not contain this “sole negligence” exception.

Contractors should ask their insurance broker to review the additional insured requirements of their contracts to make sure the additional insured endorsement fully meets the requirements. If the requirements cannot be met, the contractor should be advised prior to signing the contract. Unlike in the United States where additional insured endorsements are more standardized, in Canada a variety of clauses are used. Insurers are free to use their own clauses such as:

• “… with respect to the operations of the Named Insured under contract”;
• “… but only with respect to the operations of the Named Insured”;
• “… but only with respect to the contractor’s operations”; and
• “… but only insofar as their legal liability arises vicariously out of the negligent operations of the Named Insured”.

The use of phrases that do not meet those specified in the contract often lead to an adversarial relationship with an owner that may impact future contracts, or worse results in needless and expensive litigation for breach of contract. Know what the contract requires and compare it to what the insurance representative provides; any differences should be questioned.

First, it is important to understand that a CGL policy does not define “additional insured.” Under a CGL policy an entity or person is either a Named Insured, which may be one or more policyholders stated (named) in the policy declarations, or an Insured, such as employees or shareholders, as stated in the IBC CGL 2100 Section II – Who Is An Insured. Only those falling under the category of classes of members ascribed in Section II are covered for their liability, provided it results from a connection to the Named Insured. For example, if an employee is named in a lawsuit, coverage under the CGL is triggered only if it is as a result of the employee’s activities relating to his or her employment by the Named Insured. There is no coverage for the employee if the suit arose from attending a personal event unrelated to his or her employment.

Second, it is important to understand that the word “operations” used in the phrase cited in the first paragraph is used as a noun and not a verb. Therefore, when insurance companies add someone as “…an Additional Insured but only with respect to the operations of the Named Insured”, they mean the named insured’s contract. It is a common misconception in the insurance industry that the use of the word “operations” means the named insured must have performed the operation that led to the injury or damage in order for coverage to apply to the additional insured’s actions, and therefore the additional insured status only provides insurance for defence costs or vicarious liability. Court cases pertaining to the cited phrase have proven this wrong, establishing that the negligent acts of an additional insured are indeed covered, provided such negligent acts are related to the named insured’s contract.

Two precedent-setting cases are “McGeough v. Stay‘N Save Motor Inns Inc.” and “Board of S.D. 79 v. Underwriters and Members of Lloyds”, 2003 BCSC 1303. These cases established that the interpretation of the additional insured phrase means that the additional insured is entitled to more than just coverage for defence; they have coverage as if they fell into the category of insured under a CGL, and therefore have full coverage. Reported cases involving contractors are few, but many go unreported. The ones that are usually reported are those where the additional insured did not have a CGL policy of their own or if they had one, it had a substantial deductible, which they wanted to avoid. Others have gone to trial for determination of coverage, in particular to seek whether the named insured’s insurer was obligated to defend the additional insured.

The case of “Minto Developments Inc. v. Carlsbad Paving” is an excellent example. Carlsbad was hired by Minto to perform ice and snow removal at a condominium complex managed by Minto. In addition to an indemnification obligation, the contract required that Minto be added to Carlsbad’s CGL policy as an additional insured, and that with respect to Minto, Carlsbad’s insurance was primary insurance (in other words Minto would not have to rely on its own CGL, nor have to pay its $50,000 deductible, unless Carlsbad’s policy limit was exhausted). The injured party made a number of allegations including others not concerning inadequate snow removal. As a result, Carlsbad’s insurer refused to grant Minto additional insured status. Minto brought to court an application that the insurer and Carlsbad were obligated to defend and indemnify Minto; the court agreed.

Another example is “Carneiro v. Durham (Regional Municipality)”, 2015 ONCA 909. This was a claim involving a person injured on a highway during a winter storm. Durham had contracted snow removal services to Miller Maintenance Limited and obligated Miller to add Durham as an additional insured on Miller’s CGL policy. Numerous allegations in the claim made against Durham included poor road design in addition to inadequate snow removal. Miller’s CGL insurer refused to defend Durham for the allegations not related to Miller’s snow removal contract. Durham sued the insurer for the defense to apply to all of the allegations. The Ontario Superior Court agreed with the insurer. Durham then appealed to the Ontario Court of Appeal and Durham was successful in its appeal. The court concluded that despite the additional insured endorsement used by Miller’s insurer, the CGL’s duty to defend provision required the insurer to defend all allegations made against the additional insured, even though some had no connection to Miller’s snow removal contract. Miller’s insurer was required to appoint separate legal counsel for Durham, but “is entitled to seek apportionment of the defense costs to the extent they deal solely with uncovered claims”. In other words, once the action is settled and cause of the loss ascertained, the insurer could recoup defense expense related to losses not covered by Miller’s CGL.

These examples not only demonstrate the obligation of an insurer to afford coverage to an additional insured for the additional insured’s actions in relation to the named insured’s contract, it also demonstrates the need for those additional insureds to have their own CGL insurance. The allegations in a writ or a Statement of Claim can be quite varied, and until proven, the extent of additional insured coverage cannot be properly determined.

The last important issue is that in order to save costs, most insurers do not add additional insureds by an endorsement form in Canada, despite CGL policy conditions expressly stating that amendments to the policy can only be made by endorsement. It is less costly to issue Certificates of Insurance with additional insured verbiage added. This poses a dilemma because most insurance certificates drafted by an insurance broker contain a statement to the effect that the certificate is issued as a matter of information only and the certificate does not amend, extend or modify the policy. As such, some owners insist on the use of their own certificate form not using this wording. While a few recent Canadian decisions have ruled additional insured wording added to a Certificate of Insurance to be equivalent to an endorsement, it is suggested the aforementioned wording on the Certificate of Insurance be modified along the lines of “Except with respect to additional insured clauses, this Certificate of Insurance is issued as a matter of information only and does not amend, extend, or alter the policy.”

The IBC CGL (IBC 2100) incorporates many items contained in the American ISO CGL (Insurance Services Office ISO CGL). Among them is an amendment to the “Other Insurance” Condition that states (paraphrased) “your CGL is excess insurance over any other primary insurance available to you … for which you have been added as an additional insured by the attachment of an endorsement”. This means that on a contractor’s CGL where the owner is added as an additional insured, the owner’s policy will not be drawn in to protect the owner unless the contractor’s limit is insufficient; the contractor’s policy is primary insurance for both contractor and owner.

Some insurers offer blanket additional insured coverage. This endorsement is often referred to as “Additional Unnamed Insured Coverage”. Forms vary, including more restrictive forms requiring notification by the broker to the insurer when a Certificate of Insurance is issued. The true blanket form is very good coverage to have, more particularly because the CCDC 2 contract requires the owner and consultants to be included as additional insureds for six years after substantial completion of a project.

The IBC CGL also addresses the defence costs for any entities who the named insured contractually agrees to indemnify for legal costs; “reasonable legal fees and litigation fees” are now expressly covered. This would apply only to those not added as an additional Insured, because additional insureds must be defended by the named insured’s insurer.

It is very important that the insurance broker or agent obtain the insurance required by CCDC contracts. With respect to liability other than 5A (requires a Wrap Up liability policy for the project), one of the required CCDC coverages is the IBC 2320 endorsement. With respect to CCDC additional insured coverage requirements it meets the various requirements of CCDC 2, 5B as well as 14 and 17.

1 Vicarious liability is liability imposed based upon a relationship. For example, in most cases an employer is vicariously liable for the acts of its employee and a principal is vicariously liable for the acts of its agent. http://assets.ibc.ca/Documents/Resources/Glossary.pdf

Download Bulletin 20 – Part II (PDF)

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STATUTORY DECLARATIONS: PURPOSE AND PRACTICAL APPLICATION
Bulletin 21 – Revised May 2003

CCDC forms 9A-2001 and 9B-2001 replace the obsolete 1982 forms 9A, 9B, and 9C. These two new forms address concerns expressed by the industry relating to the understanding, value and effect of Statutory Declarations and the appropriate times at which they are to be provided. The purpose of this bulletin is to introduce the new, improved Statutory Declaration forms and to review their purpose and practical application.

Read MoreA Statutory Declaration of Progress Payment Distribution is a sworn declaration made before a commissioner for oaths, notary public or justice of the peace, whereby a Contractor (on form 9A-2001) or Subcontractor (on form 9B-2001) declares that all amounts payable by them as a result of their receipt of a specified progress payment have been paid, subject to the three exceptions which are identified on the forms.

CCDC contracts require a Contractor to provide a Statutory Declaration only with the Contractor’s application for holdback release. In practice, contract documents often require Statutory Declarations to be submitted also with the second and subsequent applications for progress payment by both Contractors and Subcontractors. However, payment of the immediately preceding application may not have been made to the Contractor or Subcontractor when the current application is submitted. Requiring the Statutory Declaration to be submitted with the current application may make it difficult or impossible for a Contractor or Subcontractor to submit a truthful declaration.

In order to enable a Contractor or Subcontractor to make an application for progress payment and have it reviewed and certified by the consultant, the new forms 9A- 2001 and 9B-2001 state clearly that these Statutory Declaration forms are to be provided as a condition of payment, but not necessarily at the same time as the application.

The New Forms
CCDC 9A-2001 is for use only by Contractors as a condition of receiving payment for either the second and subsequent applications for progress payment or the release of holdback funds. CCDC 9B-2001 is for use only by Subcontractors, similarly. By marking the appropriate box at the top left of the forms, the declarant identifies for which type of payment the form is a condition. The CCDC has made the forms user-friendly by dividing the required information graphically into self-explanatory sections. A note highlights the seriousness and risk of making a false or fraudulent declaration.

Copyright
CCDC 9A-2001 and 9B-2001 are copyrighted documents. The previous 9A, 9B and 9C- 1982 documents were often being reproduced without regard to their copyright. As indicated by the box in the lower right hand corner of the new documents, a CCDC-9 copyright seal is required to be applied to each and every completed form. Failure to apply a CCDC-9 copyright seal is an infringement of the copyright and subject to prosecution under applicable laws. The use of a CCDC-9 copyright seal is intended to allow the soft-copy electronic distribution of a document and to demonstrate that it is an authentic, unamended version of CCDC 9A-2001 or 9B-2001. All parties receiving these documents should accept only those which are properly sealed. Please see CCDC Bulletin 23 ‘The Proper Use of CCDC Copyright Seals’.

Download Bulletin 21 (PDF)

Without offering an opinion as to whether or not a privilege clause should be used, concerns in the construction community have prompted the CCDC to provide the following recommended approaches by owners and bidders when dealing with a privilege clause:

• The concepts of ‘duty of fairness’ and ‘bargaining in good faith’ are fundamental to the bidding process. Do not give one contractor any undisclosed advantage over another contractor.

• Clearly disclose all criteria intended to be relied upon in evaluating and awarding bids in the call for bids. Do not rely upon any criterion not disclosed in the bid documents as a basis for contract award.

• Do not use a privilege clause to ‘bid shop’ or test the market. Only call bids where the work will proceed, provided that bids are within the predetermined budget and meet all other disclosed criteria, barring any significant change in circumstances (e.g. owner finances).

• Do not use a privilege clause to award a contract to a bidder whose bid does not comply with either the terms of the bid call or the disclosed bid evaluation and award criteria.

• When dealing with a privilege clause take care in evaluating bidders’ positions in light of all the disclosed bid evaluation and award criteria. · As bidders, do not attempt to take advantage of any undisclosed bid evaluation and award criteria.

For additional information relating to the bid process, refer to CCDC 23 ‘A Guide to Calling Bids and Awarding Construction Contracts’.

Download Bulletin 22 (PDF)

What is a CCDC Copyright Seal?
It is a 1×2½ – inch adhesive-backed paper decal with the copyright message, a CCDC document number and document date. Each CCDC document has its own CCDC Copyright Seal. For example, CCDC 3 (1998) – must be used with the CCDC 3 (1998) – Copyright Seal. The seal’s colour is coded to correspond to the cover of the hard copy document for easy reference.

Who should use CCDC Copyright Seals?
Everyone who is using CCDC electronic documents, direct amendments to which are prohibited. Integrity of both process and documents is essential.

When is a CCDC Copyright Seal to be used?
A Copyright Seal must be used on all CCDC documents to be executed from printed electronic versions. For example, if there are three copies to be executed, such as one each for the contractor, the owner and the consultant, each copy must first have a Copyright Seal before being signed. A printed electronic CCDC Document with an affixed Copyright Seal is equivalent to an original CCDC hard-copy document. Original hard-copy CCDC contract forms do not need Copyright Seals; in fact, there is no place to affix them. A Copyright Seal must not be used on photocopied CCDC contract forms, which are themselves illegal to produce. Photocopies of original CCDC Documents must not be used.

Where should a CCDC Copyright Seal be affixed?
A CCDC Copyright Seal must be affixed to the front page of the printed electronic document in the indicated area. Once affixed a Copyright Seal must not be removed from a document. (Note: all CCDC Statutory Declarations, whether original hard-copy or printed electronic versions, require a CCDC Copyright Seal. See CCDC Bulletin 21.)

Why do we have to use a CCDC Copyright Seal?
The use of a Copyright Seal is intended to demonstrate that the CCDC Document is authentic, accurate and unamended with the exception only of additions or modifications as may be set forth in supplementary conditions. A Copyright Seal’s application is a representation that the document has not been changed from its original form. Therefore the parties only need to pay particular attention to the filled-in blanks and the supplementary conditions. The use of an electronically generated CCDC Document not containing a CCDC Copyright Seal constitutes an infringement of copyright. A printed electronic document should be signed only if the document’s front page already has a CCDC Copyright Seal. The revenues from the sales of CCDC Documents & Copyright Seals help to finance the work of the Canadian Construction Document Committee.

Where do we purchase CCDC Copyright Seals?
CCDC Copyright Seals can be purchased at any CCDC authorized document sales outlet (a list is available on the CCDC web site). The outlet determines the prices.

Download Bulletin 23 (PDF)

This bulletin:
• Identifies some of the risks that are not insured by ‘standard policies’ currently available in the insurance market;
• Cautions about the hazards of recently introduced conditions, exclusions and insurance warranties; and
• Provides information and advice on how to identify risks, address requirements for necessary insurance and deal with recently introduced coverage limitations.

Contractors, owners, consultants and their insurance professionals should ensure that proper attention is paid to these matters prior to completing bid documents and submitting bids.

1. Types of insurance coverage that are NOT required by CCDC contracts
Unique exposures presented by individual projects and today’s emerging risks can result in certain hazards not being addressed in CCDC contracts or provided by ‘industry standard’ insurance policies. At the same time, informed owners, their legal counsel and in particular financiers often seek to protect their interests by introducing a wide range of supplementary general conditions that impose responsibility on contractors to accept and/or insure these risks. This is often done without provision to fully understand the additional risks that may be imposed by these conditions. Owners and contractors need to be cognizant of these matters in order to deal appropriately with them.

Some examples of types of coverage that may be required outside ‘industry standard’ insurance policies include:
• Environmental Liability (Pollution Insurance), on a sudden and accidental basis or, full coverage for sudden and gradual (long term) exposure.
• Coverage for damage to existing property (in the case of renovation and addition projects) · Delayed Start Up and Consequential Losses (Business Interruption as well as additional Soft Costs coverage).
• Occupancy Risks (from ongoing operations over which the contractor has little or no control)
• Design Risks (Errors and Omissions Insurance)
• ‘Force Majeur’ Risks (including Civil Commotion) and performance or efficacy risks. Sometimes financiers may also require provision of Liquidated Damages insurance in this grouping.
• Terrorism Insurance.
• Mould and Lead Abatement coverage.

Advice: Owners and contractors should never take for granted that standard insurance policies or contract insurance specifications address all of the risks associated with a project. Prior to bidding a contract, it is important to conduct a detailed review of the insurance requirements for the project with insurance professionals that are qualified to transact construction insurance. The purpose of the review should be to identify additional types or limits of coverage, if necessary, that may be required to satisfactorily protect the various parties ’ interests in the work. CCDC 21, A Guide to Construction Insurance provides advice on selecting a broker or agent to service construction insurance needs.

2. Risks that are excluded in Industry Standard Insurance Policies
Many insurance companies’ policies now contain exclusions or come with mandatory attachment of exclusions for such risks as:
• Asbestos · Pollution · Cyber-risk (‘Data’)
• Fungi (Mould or Micro organisms)
• Terrorism

Failure by owners and contractors to address these issues may result in uninsured losses. Coverage may be available for some of these risks by means of extending standard policies for an additional premium. The resulting coverage is often limited in scope of coverage and subject to a sub-limit of insurance. Some risks may require separate, specialized insurance.

Advice: Prior to completing bid documents and submitting bids, owners and contractors should review these and ‘emerging issues’ with their insurance professionals, paying particular attention to how these risks may impact on the project in question. For example, asbestos may be of little or no concern in the case of stand-alone new construction that will contain none of this material. However, the mere location of an otherwise ‘low risk’ project in proximity to what insurers perceive to be a ‘terrorism target’ may render terrorism coverage unavailable or very costly. The importance of risk management with an eye towards mitigating insurable and non-insurable risks prior to the bidding process will help you protect your business.

Download Bulletin 24 (PDF)

The Indemnification clause GC 12.1 in CCDC 2 (1994) – in part reads as follows:

GC 12.1 INDEMNIFICATION

12.1.1 The Contractor shall indemnify and hold harmless the Owner and the Consultant, their agents and employees from and against claims, demands, losses, costs, damages, actions, suits, or proceedings (hereinafter called “claims”), by third parties that arise out of, or are attributable to, the Contractor’s performance of the Contract provided such claims are:
.1 attributable to bodily injury, sickness, disease, or death, or to injury to or destruction of tangible property, and
.2 caused by negligent acts or omissions of the Contractor or anyone for whose acts the Contractor may be liable, and
.3 made in writing within a period of 6 years from the date of Substantial Performance of the Work as set out in the certificate of Substantial Performance of the Work, or within such shorter period as may be prescribed by any limitation statute of the province or territory of the Place of the Work.
The Owner expressly waives the right to indemnity for claims other than those stated above.

The risks imposed upon a contractor by the indemnification clause are typically passed on to the insurance companies (subject to the policy’s terms) through the purchase of insurance policies specified in the insurance provision. The net result is not an absolute transfer to the insurance companies because “bodily injury” or “property damage” arising out of risks such as mould or pollution that may arise out of the Work are generally excluded, at least in part, by virtually all commercial general liability policies. There are also deductibles and other aspects that may exclude coverage such as:
• personal property in the contractor’s care, custody or control; or
• damage to the part of the property that the contractor is working on.

Any change to the indemnification clause or amendments imposing such terms as “however caused” and “all damages” into the contract should be avoided. This would mean the Contractor may be liable for acts beyond its control, including acts of God. An insurance professional should be consulted by the Contractor to determine if their insurance programs cover the additional risks and whether it is possible to purchase additional insurance to cover all or part of the additional exposure.

Owners should appreciate that when the intent of the Indemnification clause is changed, the number of bidders on a project may be reduced, as Contractors may choose not to bid based upon the additional uninsured risk incurred. Contractors may also increase their bid pricing to pay for the additional insurance costs or to fund potential uninsured losses. The net result to the Owner is increased costs to the Project.

When the indemnification clause is changed, deleted or a unique indemnification clause is created, the Owner is transferring additional and often substantial uninsurable risk to the Contractor. The result may be uninsurable payouts potentially causing insolvency of the Contractor, resulting in serious financial losses to both parties. All parties need to be aware of the impacts and consequences of revising the Indemnification requirements of the Contract and should consult with their insurance professionals to review any potential changes to the Indemnification Clause.

Download Bulletin 25 (PDF)