FAQ.07

Question:

In recent years as contractors, we’ve been asked more often to submit the trade invoices as back-up to our monthly progress draw (application for payment). Is this mandatory when working under a CCDC 2 contract on a tendered project? The trade invoices required are usually the electrical & mechanical trades, and we are told the reason is to verify the percentage complete. I’m not sure how this practice verifies anything of legal substance. Shouldn’t the consultant be capable of determining, within reason, the value of work complete in any given month? My concern is that this practice will spread, requiring us to submit invoices for all the architectural finishing trades also, therefore making a tendered stipulated sum contract completely open book.

Answer:

For CCDC 2-2008 and 2020 (without any supplementary conditions), it is not mandatory to provide all the subcontractor’s invoices with monthly progress draw applications. The contractor is however, required to provide evidence/back-up that would justify the monthly draw request. Note that, where a schedule of values is agreed upon prior to the first application for payment as required by CCDC 2, that schedule of values' listing of work items should provide a good breakdown for the consultants of all parts of the project, enabling them to evaluate the amount of work completed to date. Note that the purpose of the schedule of values is to assist the architect in evaluating the application for payment and is to be prepared to the architect’s acceptance.

Sub-contractor invoices may be useful, for example, where products (such as hollow metal doors) are delivered to site and invoiced well before the labour to install them is expended or where products of very different costs and quantities are included in a single line item on the schedule of values.

In some instances, consultants request the mechanical and/or electrical subcontractor invoices as an additional aid in determining the monthly percentage complete values. This should not be something feared by the contractor. It should facilitate and even speed up the application for payment review process. Often back-up is requested because the work items in the schedule of values are not broken down sufficiently to assist adequately in evaluating the application for payment. Any discrepancies between the subcontractors’ invoices and the contractor’s application for payment should be explained in the material submitted.

With regards to this leading to further requests for other subcontractors' invoices, that is an unlikely scenario under CCDC 2 contracts, since they are usually not as complex as the electrical and mechanical scopes of work. Of course, with other forms of contract, and in particular with PPP projects, the requirements may be entirely different.

Expanded Answer:

As stated above, while it is not mandatory to provide all subcontractors' invoices with monthly applications for payment, adequate breakdown of the work in the Schedule of Values must be provided in order to facilitate accurate, fair, and timely review. Doing so is as much to the benefit of the contractor or subcontractors as it is to the architect and their sub consultants.

The level of detail required to provide a ‘good breakdown’ varies with the complexity of the project, most notably cost and size, but also the technical complexity of the construction and with contractor requirements. For example, phasing of work and overall schedule. Is all work sequential and the concrete and steel subcontractors complete before the partition framing is underway, or are numerous subcontractors working in different areas at various stages of completion in different areas of the project? Will there be long intervals between delivery, installation, and/or finishing or will it happen in rapid succession? These factors result in more or less information needed to clearly and easily demonstrate and assess the progress of work, which is to the mutual benefit of all parties.

Examples of the above challenges often include drywall and door & hardware contracts. If the partitions are all framed at once, and gypsum board installed & finished at once only afterwards, in a small building, a couple of line items may suffice- e.g. framing; board/finish; perhaps repeated per floor provided the subcontractor is not expecting to be paid for delivery of materials.

On the other hand, in a multi-million dollar high-rise project where deliveries of materials account for a significant expenditure, and framing, installation, and finishing activities are happening in concert at different levels of completeness in completely different wings or blocks of a building, it may be advisable to include multiple line items, per floor and per area– e.g. supply of framing materials; framing; supply of board materials; boarding; taping/finishing; repeated per floor and building area as necessary.

Having the above agreed upon prior to the first application for payment will help immensely to expedite the review process and ensure fewer questions/concerns from both parties (as to how an item is justified to have been progressed to nn% complete, or may need to be reduced from nn% complete).

While the provision of a subcontractor invoice is not necessary to achieve this; it is incumbent on the contractor to prepare a Schedule of Values that is acceptable to the architect and manage the correlation between the Schedule of Values and their subcontractors’ invoices. Providing subcontractor invoices that do not correspond clearly and accurately to the Schedule of Values is of benefit to no one.

It may in certain circumstances be more straightforward and preferable not only for the architect or consultant but for the contractor to simply base the Schedule of Values on a subcontractor invoice that is provided for particularly complex or unique scope of work, as is often the case with the electrical and mechanical scopes of work.

That said, contractor-subcontractor invoices are not under the purview of the consultant and in review of progress payments the consultant does not specifically concur with or approve any part of such invoices; it is therefore cautioned that provision and review of actual subcontractor invoices may imply a higher degree of scrutiny than intended (i.e. only being used for general review and understanding of the division of scope between subcontractors), which could lead to unnecessary questions of minutia in future applications for payment.

Preliminary meetings to review the Schedule of Values including proposed breakdowns, at the beginning of the project prior to the first application for payment, at the award of a phased portion of a project (as the Schedule of Values is expanded to incorporate newly tendered and awarded work), and/ or as work progresses to review the monthly progress draws, is highly recommended. It is often the most expedient way to understand one another’s requirements, questions or standpoint, and resolve any differences of opinion.

With the advent of prompt payment under the Construction Act, R.S.O. 1990, c.C.30, quick processing of draft and formal applications for payment becomes increasingly important and anything that facilitates this is helpful.