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The failure of a contractor to pay money owed to subtrades and suppliers for a project puts the project at risk of construction liens, schedule delays and potentially default by the contractor. The risk to the owner is mainly that they are the owner of the project and when funds are misdirected it can trigger legal processes involving the bonding company, the construction liens, lending institutions and legal counsel. The outcome is not predictable and is different for every instance where this may occur, so it is only possible to offer insight into the risks to the “project” as opposed to the “owner” as the risks to the owner often are determined through the outcome of legal processes.
There is a risk to a project on any payment made to the contractor; the risk being that the money may not be used to make payment to subtrades and suppliers for which the money is intended. We all act in good faith, but the practice of misdirecting the funds paid on a project through a Certificate for Payment has occurred in the past, and will likely continue to occur on future construction projects. One mechanism used by payment certifiers for some assurance that money is being paid to suppliers and subtrades is to obtain a sworn statement from the contractor using the CCDC-9A Statutory Declaration.
CCDC 9A – 2001 Statutory Declaration of Progress Payment Distribution by Contractor is a sworn statement for use by the Contractor as a condition of receiving payment for either the second and subsequent applications for progress payment or the release of holdback funds.
CCDC have produced “Bulletin-21, Statutory Declarations: Purpose and Practical Application” where they offer a description of the intent of the Statutory Declaration;
A 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.
The CCDC-2 Stipulated Price Contract doesn’t make mention of the use of Statutory Declarations until such time that a certificate of Substantial Performance has been issued and the Contractor is submitting an application for payment for release of their holdback amount. CCDC-2, GC5.5 Payment of Holdback Upon Substantial Performance of the Work reads;
5.5.1. After the issuance of the certificate of Substantial Performance of the Work, the Contractor shall:
.1 submit an application for payment of the holdback amount,
.2 submit CCDC 9A ‘Statutory Declaration’ to state that all accounts for labour, subcontracts, Products, Construction Equipment, and other indebtedness which may have been incurred by the Contractor in the Substantial Performance of the Work and for which the Owner might in any way be held responsible have been paid in full, except for amounts properly retained as a holdback or as an identified amount in dispute.
Obtaining a Statutory Declaration with applications for payment is good practice and it is good practice to add language to the Supplementary Conditions or Specifications for every project requiring the use of a Statutory Declaration with every application for payment following the first application for payment. The suggested wording should include, “Contractor to include an executed CCDC-9A Statutory Declaration with the second and subsequent applications for progress payment as a condition for receiving payment.”
There is an example of a project from the 1990’s where a statutory declaration was required to be provided with the second and subsequent applications for progress payment as a condition for receiving payment, yet still after eight-months into the project, the project architect started to receive telephone calls from subtrades and suppliers asking whether the General Contractor had been paid on the project because they were owed money from the previous six-months of construction. This contractor ended up in default and breach of contract and the Labor, Material and Performance Bonds were used in completing the project with a new contractor. The owner was faced with project delays as well as additional costs in completing the work, due to deficiencies and poor workmanship discovered following the contractor’s abandonment of the project.