FAQ.08

Question:

After a project is substantially performed, and basic holdback is released, the project continues and a 10% “finishing” holdback on any payments made subsequent to substantial performance must be retained until work is deemed complete as defined in the Construction Act  (approx. less than $5,000 outstanding). The general contractor is requesting release of holdback with each application for payment based on the fact that the work was requested by the owner and is additional scope. Please advise.

Answer:

Refer to OAA/OGCA Document 100  – Take Over Procedures  which is available from the OAA Website. The following excerpt confirms that finishing holdback is required to be withheld until the contract is deemed complete under the Construction Act (CA). The holdback is not eligible to be claimed by the Contractor on an application for payment until the contract is deemed complete under the CA.

6.1 (a) When the Contractor is satisfied that the Contract is completed as defined in subsection (3) of Section 2 of the C.A., and after making an inspection, the Contractor shall forward the inspection report and make a written request to the Consultant and/or Payment Certifier for a review and assessment of the work. The Consultant and/or Payment Certifier shall, in turn, notify the Owner of the Contractor’s request. The Contractor's request shall include a statement as to the amount of monies for the holdback for finishing work due for release and payment upon expiry of the 60-day period from the date the Contract is completed. This review and assessment by the Consultant and/or Payment Certifier shall be carried out within 10 calendar days of the Contractor’s request and shall constitute the review and assessment which is a precondition to the issuance of the statement of completion and issuance of the certificate for payment for the work performed to the date of the completion.

Expanded Answer:

The provisions of the CA apply to any payment made under a contract regardless of whether any item of work was in the original scope or was added at any time during the contract. Where additional work is documented as a change to the contract (e.g. by Change Order or Change Directive), the additional work becomes part of the contract and is subject to all the provisions of the CA.

If a portion of the additional scope is undertaken before substantial performance, the holdback on the completed portion of the additional scope accrues as part of the basic holdback and is released after substantial performance. The holdback on the remaining portion accrues as part of the finishing holdback and is released after deemed completion.

Where scope is added after substantial performance, the holdback on the additional scope accrues as part of the finishing holdback, and is released after the project is deemed complete. If the addition of scope after substantial performance has been achieved results in the financial requirement for substantial performance under the CA being no longer met, it doesn’t invalidate the previously determined substantial performance of the contract. Another certificate of substantial performance is not required when the project again meets the financial requirement nor is another publication of the certificate of substantial performance required or appropriate.