An awful lot of cash sits every day in holdback accounts. That
cash waits there, ever so patiently, until such time as somebody
says or does the right things to have it released.
If you are an owner, this situation
suits you just fine. The cash in the account provides an owner with
some security – if a last minute problem arises with your
contractor you know you have this money in reserve.
If you are a contractor, you want that
cash paid to you as soon as possible. Not only is that money
imperative for your cash flow, your payment risk vanishes as soon
as that final payment comes in.
An understanding of the rules governing
holdback releases is therefore worth your time.
In BC, the Builders Lien Act
allows for progressive release of holdback. That means as soon as a
contract or a subcontract is substantially performed, the
contractor or a subcontractor can apply for a release for the
holdback under its contract.
The mechanism for doing so is a simple
one. All that is required is a written request to the payment
certifier for a determination as to whether the contract or the
subcontract has been substantially performed.
The payment certifier can be different
entities on the project – often the architect but, sometimes
the general contractor for trades. If it is unclear who is to
certify payment under your contract, either ask the party you
contracted with, or send your request to all the potential payment
Once your request has been made, the
payment certifier is legally obligated to determine within ten days
whether the contract has been substantially performed. The
determination must be done properly, using the tests for completion
set out in the Act (in most cases that will be the 3-2-1
substantial performance formula).
Unfortunately, payment certification
requests are often ignored for substantial periods of time. Unless
some friendly pressure is applied, it typically is not a
high priority in accounting departments to expedite a
contractor's or subcontractor's holdback release.
Fortunately for those requesting a
holdback release, the Act provides a mechanism with which to apply
some pressure. Section 7(8) of the Act states that a payment
certifier that receives a request and who fails or refuses to issue
the certificate without good reason is liable to anyone who suffers
loss or damage as a result.
Accordingly, if you are a contractor or
subcontractor and you want your holdback, remind your payment
certifier of their legal obligations. A friendly reminder of their
legal liability under section 7(8) will usually get their
If you are a payment certifier, be
aware that a request for a determination that a contract is
complete is not a mere administrative request, it is a formal legal
request that comes with a legally mandated requirement to respond,
and legal liability for failure to respond within the required
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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