Canada: Construction Crunch

Last Updated: December 5 2008
Article by Howard Wise

Over the past several months, we have seen a major change in the economy. All the sectors of the economy have been affected including the construction industry. While certain areas of the construction industry are more buoyant than others, there has clearly been a change in attitude sparked by the downturn in the economy. As such, owners, contractors, subcontractors, and suppliers must ensure that they take the appropriate steps to limit their risk. Set out below are ten steps that owners, contractors, subcontractors, and suppliers should consider:

1. What are the payment terms?

During the course of the last few years, payment terms have, in many instances, been extended out from 30 to 60 days and beyond. If possible, one should attempt to shorten the payment terms. Obviously cash flow is important to any construction project and the sooner the funds work their way into the construction pyramid, the better for all. As such, on all new work, contractors, subcontractors and suppliers should be negotiating the most favourable terms of payment to ensure an orderly and predictable cash flow.

2. Are the payment periods being missed?

Any delay from the agreed payment periods is a cause for concern. When payment extends from 30 to 45 days or from 60 to 75 days, it is often a sign that there are cash flow issues. The owner should be satisfied that the funds it advances are being properly utilized and that the contractor is paying its subcontractors.

3. Is the account being paid in full?

Is the invoiced amount being paid in full? On a financed construction project, the billings are generally approved by a payment certifier and draws are based on those certifications. Assuming that one's work has been certified, there is no reason that the full amount of the certificate as it relates to a certain portion of the work does not flow through to the contractor or subcontractor who performed the work. Partial payment of an account, at any level of the construction pyramid, may be cause for concern.

4. Is there is a performance bond in respect of work being performed?

A performance bond is security that is provided to address the situation where the party contracting for the labour, services and materials, encounters a default on the part of the person supplying the bond ("Principal"). If the Principal under the bond defaults under the contract, the performance bond provides security to ensure completion of the contract. In the event of a major default by a contractor, subcontractor or supplier, having a performance bond will go a long way to ensure completion of that defaulted contract. One must have regard to the provisions of the contract to determine what constitutes a default.

5. Is there a labour and material payment bond?

A labour and material payment bond is intended to address non-payment from the contractor or subcontractor supplying the bond ("Principal") to its trades or material suppliers. Where a general contract calls for a labour and material payment bond, that bond will respond in the event the contractor fails to pay its sub-trades. It is most often the sub-trades with privity of contract with the contractor (claimants under the bond) who are entitled to look to the labour and material payment bond for payment if the Principal defaults. It is important to note that for many projects, bonds are not necessarily provided and the subcontractor or supplier of materials may not be able to look to a bond in the event of a contractual default.

6. Have the bonds been signed, sealed and delivered?

Performance and Labour and Material Payment Bonds must be signed, sealed and delivered in order to be effective. Case law has held that where the bonds were not signed, sealed and delivered, that they could not be called upon where a default occurred.

7. What is the status of payments from the owner to the contractor and from the contractor to the subcontractor?

Various lien legislation allows a person who supplies labour, services or materials to a project to request certain information under the relevant lien act. This includes the current status of accounts, holdback amounts, as well as obtaining copies of any labour and material and payment bonds. (See for example Section 39 of the Ontario Construction Lien Act.)

8. Is there construction financing?

A search of title will help disclose whether or not a given project is being financed through construction financing. Various lien acts address priorities between lien claimants and construction financiers. Lien legislation also affords one who supplies labour, services and materials to the improvement to obtain information from the financier in respect of the status of the mortgage financing.

9. Have liens been registered against the property?

Non-payment to trades may be a sign that the owner, contractor or a subcontractor is encountering certain financial difficulties. Of course this is not determinative and there are many reasons and issues that may result in non-payment to a contractor or subcontractor. However, the registration of numerous liens may be a sign of other problems on a project, leading to further enquiry. Conducting searches of title during the course of a project is a relatively inexpensive way of determining whether or not there are potential payment issues that have resulted in liens being filed against the property.

10. Has Notice been given under the Contract?

Regardless of where one is situated on the construction pyramid, one should ensure that, to the extent there are notice provisions under the Contract, Subcontract, or Purchase Order, the appropriate notice is given pursuant to that agreement. Failure to give notice, while not necessarily fatal, may prejudice or impair one's ability to recover should a claim be required.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.