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Construction Law

Pay When Paid Clauses

By on Nov 30, 2011 in Construction Law

  Construction work is being done at a faster pace and often with smaller profit margins. Getting paid for all of the work your company does, and everything your company supplies, is increasingly important in this environment. Working with an owner (if a contractor or subcontractor, with a General Contractor) that has a good payment record and solid credit history can help. A subcontractor will want to avoid contracts that allow a contractor to avoid payment with a pay when paid clause. General Contractors will want to see these clauses to help share the risk of non-payment by an owner. This article provides an overview of how the courts in Ontario deal with “Pay when paid” clauses and what type of wording to watch for at the time of signing the contract. Each case, however, is determined on its own unique facts. As such, this information is general in nature and should not to be relied on as legal advice.   What is a Pay When Paid Clause?   It is becoming more and more common for contractors to include a clause in their contracts with subcontractors that allows them to wait to pay for work done until not only after they are paid for the work themselves, but also only if and when they are paid by the owner for the work. These clauses can apply to the work in the contract and to extras and changes as well. Courts are reluctant to allow contractors to rely on these clauses to allow a contractor to avoid payment to a subcontractor and require very strict and clear wording to do so. In the case of Timbro Developments Ltd. v. Grimsby Motors Inc. [1988] O.J. No. 448 (O.C.A.) wording that was considered by the Ontario Court of Appeal to be sufficiently clear in Ontario to allow a contractor to avoid paying a subcontractor for work done was as follows: When used for sub-contract work the following terms will apply: Payments will be made not more than thirty (30) days after the submission date or ten (10) days after certification or when we have been paid by the owner, whichever is the later.   What are the potential problems with a...

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Labour and Material Payment Bonds

By on Oct 25, 2011 in Construction Law

  Construction is becoming an increasingly competitive industry. As budgets for the work decrease in size the expectations and requirement for the work to be done quickly and well become greater. This means that work is being done at a faster pace and often with smaller profit margins. Getting paid for all of the work your company does and everything your company supplies is increasingly important in this environment.   Working with a company that has a good payment record and solid credit history can help. Another method of ensuring you are paid is the Labour and Material Payment Bond. This article provides an overview of what a Labour and Material Payment Bond is and some basic steps to take to help ensure that you can take advantage of the Labour and Material Payment Bond to ensure payment. It is not to be relied on as legal advice.   What is a Labour and Material Payment Bond?   It is not uncommon in the construction industry, especially on a commercial construction project, for an owner to require a general contractor to post a Labour and Material Payment Bond. The Labour and Material Payment Bond is a type of insurance that is used to guarantee that subcontractors and suppliers are paid for the work and material they supply on the job. The company that provides the bond, that in effect insures payment for the work and materials, is called the surety. From the perspective of a subcontractor or supplier, the bond provides protection to them that they will be paid. From the perspective of the owner and the general contractor the bond can reduce administrative burden and can help build their image as being a good organization with whom to work and do business.   Are you entitled to see a Labour and Material Payment Bond?   Usually, the General Contractor will be the principal on the bond and will enter into it for the benefit of the owner. Subcontractors and suppliers would be claimants under the bond. The principal and the owner should normally receive a copy of the bond when it is entered into. Subcontractors and suppliers are generally not provided with a copy of the Labour and...

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