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Deemed Completion

By PARC

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2018 07 This article has been revised to reflect changes in applicable legislation
History
Deemed Completion hasn’t always been with us. The origins of Deemed Completion are in danger of being lost in the mists of time. It is understood that originally there was only Completion. It would seem to have been straightforward. Either a project was complete, or it wasn’t.

Completion triggered the countdown on the expiry of the lien period and on the release of statutory holdback monies. This meant that different parties had different interests in having a project declared complete or not. Some owners saw an advantage in continuing to find minor deficiencies and incomplete items, thus delaying completion, final payment, and payment of finishing holdback. Some subcontractors would find little tasks to do just before the lien period expired. This changed the date of last supply, and extended the lien period. This happened most often when the relationship between the general contractor and a subcontractor was strained and the subcontractor had yet to be paid.

In order to avoid such manipulations and abuses, the concept of Deemed Completion was introduced into the Construction Lien Act. Deemed Completion says that when you meet a certain threshold, that’s close enough to start the countdown on the expiry of the lien period and on the process for the release of the statutory holdback even if the project is not 100% complete.  

In December, 2017, the Ontario legislature enacted Bill 142, the Construction Lien Amendment Act, 2017. As stated in the title, this Act amended the Construction Lien Act R.S.O. 1990, Chapter C.30 (CLA) in many ways, including renaming it as the Construction Act R.S.O. 1990, Chapter C.30 (CA).  The amendments will be phased in over time.  References in this document to the Construction Lien Act (CLA) refer to the CLA prior to the July 1, 2018 amendments in Bill 142 and references to the Construction Act (CA) refer to the amended Act.

In addition to the phasing in of the amendments, there are transition provisions that determine which version of the Act governs a particular project.  It is possible that the provisions of the CLA will continue to govern projects for five or more years.

Conventional Sequence

Substantial Performance

On a typical project, the milestone event before Deemed Completion is Substantial Performance.
The Construction Lien Act states in part:

2. (1) For the purposes of this Act, a contract is substantially performed,

(a) when the improvement to be made under that contract or a substantial part thereof is ready for use or is being used for the purpose intended; and

(b) when the improvement to be made under that contract is capable of completion or, where there is a known defect, correction, at a cost not more than,

(i) 3 per cent of first $500,000 of the contract price,

(ii) 2 per cent of next $500,000 of the contract price, and

(iii) 1 per cent of the balance of the contract price. R.S.O. 1990, c. C.30, s. 2(2).

The Construction Act states in part:

2. (1) For the purposes of this Act, a contract is substantially performed,

(a)  when the improvement to be made under that contract or a     substantial part thereof is ready for use or is being used for the      purpose intended; and

(b)  when the improvement to be made under that contract is capable of completion or, where there is a known defect, correction, at a cost not more than,

(i)    3 per cent of first $1,000,000 of the contract price,

(ii)    2 per cent of next $1,000,000 of the contract price, and

(iii)   1 per cent of the balance of the contract price. R.S.O. 1990, c.   C.30, s. 2(1).

In addition to this determination, publication of the certificate of substantial performance in a regularly published construction journal is required. Currently, the Daily Commercial News is the publication of choice.

Finishing Work

For most projects of significant size or complexity, there will be a number of monthly applications for payment before the contractor requests a determination that the project is Deemed Complete. For some projects, the next application for payment after substantial performance may include a request to have the project Deemed Complete.

Deemed Completion

The Construction Lien Act states in part:

(3) for the purpose of this Act a contract shall be deemed to be completed and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of:

(a) 1 per cent of the contract price; and

(b) $1,000 R.S.O. 1990 c. C30, s. 2(3).

The Construction Act states in part:

(3)   For the purpose of this Act a contract shall be deemed to be

completed and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of,

(a)    1 per cent of the contract price; and
(b)    $5,000 R.S.O. 1990 c. C30, s. 2(3); 2017, c. 24, s. 4 (5).

Note that the actual date of last supply is now irrelevant, having been replaced with the deemed date of last supply.

There is in both Acts, as noted above, an identified benchmark for the determination of Deemed Completion, but no 'Certificate of Deemed Completion' preprinted numbered form is included in or referenced in either act. Neither is there any requirement for the publication of the date of deemed completion.

While the CCDC General Conditions incorporate the Substantial Performance concept and terminology from the Construction Lien Act, Deemed Completion has not been incorporated into the standard contract forms as the concept of Deemed Completion is not uses in all jurisdictions across the country.

The determination of Deemed Completion is a regular and routine part of every project in Ontario. As noted, not all Canadian jurisdictions have the same provisions or thresholds as the province of Ontario, so when working in other jurisdictions, be sure to familiarize yourself with the applicable legislation and contract provisions.

Variation of Sequence

The Construction Lien Act goes on to state in part:

 (2)  Subject to subsection (4), the lien of a contractor,                                 

(a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the forty-five-day period next following the occurrence of the earlier of,

(i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published as provided in section 32, and

(ii) the date the contract is completed or abandoned; and

(b) for services or materials supplied to the improvement where there is no certification or declaration of the substantial performance of the contract, or for services or materials supplied to the improvement after the date certified or declared to be the date of substantial performance, expires at the conclusion of the forty-five day period next following the occurrence of the earlier of,

(i) the date the contract is completed, and

(ii) the date the contract is abandoned. R.S.O. 1990, c. C.30, s. 31 (2).

The Construction Act goes on to state in part in Part V:

(2)    Subject to subsection (4), the lien of a contractor,

(a)    for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the sixty-day period next following the occurrence of the earlier of,

(i)    the date on which a copy of the certificate or declaration of the substantial performance of the contract is published as provided in section 32, and

(ii)    the date the contract is completed or abandoned; and

(b)    for services or materials supplied to the improvement where there is no certification or declaration of the substantial performance of the contract, or for services or materials supplied to the improvement after the date certified or declared to be the date of substantial performance, expires at the conclusion of the sixty-day period next following the occurrence of the earlier of,

(i)    the date the contract is completed, and
(ii)    the date the contract is abandoned. R.S.O. 1990, c. C.30, s. 31 (2); 2017, c. 24, s. 26 (4), 66.

On a lengthy project where there is a significant time span between substantial performance and the date the contract is completed, these provisions are rarely considered.

On a short project, where there is little if any time lapse between substantial performance and the date the contract is completed, the general contractor may choose to forego a request for substantial performance and seek to go directly to deemed completion. Doing so avoids the cost of publication of the certificate of substantial performance.

On a long duration project, some trades (eg. excavation, foundation) may have left the site years before substantial performance, and it is important that the certificate of substantial performance be published to alert them to the impending loss of their lien rights. For short duration projects, most trades are still involved and aware of progress, so publication is less significant.

Also, as stated in the excerpt above, the lien period expires 45 or 60 days (depending on what version of the Act is applicable) after the earlier of the publication of substantial performance or deemed completion. It is possible on short duration projects for deemed completion to occur before publication of substantial performance. In such circumstances, were there to be a publication of substantial performance, it could lead to confusion among the trades as to when the lien period expires.

For the general contractor on a small project, the cost of preparing the documentation and of publication of a certificate of substantial performance may be a significant portion of the expected profit for the project. To preserve profit, many general contractors prefer not to publish if they don’t have to.

For these reasons, it is common to see short duration projects proceed directly to deemed completion without a request for the determination of substantial performance.

Examples of Statements of Contract Deemed Complete may be found in OAA/OGCA Document No. 100 and in OAA PT.10. The versions in Document 100 are lacking some of the information found in the versions in the PT.10 series. The OAA versions do not include the identification of premises for preservation of liens.

Since court rulings affect the interpretation and application of legislation, it is recommended that firms consult their own solicitors as to the interpretation of both the Construction Lien Act and the Construction Act, or in specific cases, recommend to Clients that they obtain clarification from their Client's own solicitors.

For additional information, refer to OAA Practice Tip PT.10  series and the OAA/OGCA Documents No. 100 and 100-2018 OAA/OGCA Take-Over Procedures.