FAQ.28

Question:

We have a project in which the contractor has obtained a building permit and has proceeded with the work based on a letter of intent from the client. The client has not yet generated the paperwork required before they can sign a contract (CCDC 2 in this case). It has been more than a month, and the contractor has submitted an application for payment.

Since there is no formal contract, it would appear that there is nothing for us to administer and no requirement to certify anything. The client will not pay unless there is a certificate for payment. If there is no payment, work will stop and both the client and the contractor will be upset and blame the consultant for being too legalistic.

Is there anything that we can do to qualify a certificate for payment that won’t attract undue liability, but will allow the work to continue?

Answer:

An enforceable contract has existed from the moment the owner / client issued its letter of intent which will have accepted the contractor’s bid (or negotiated amended bid). The contractor has clearly understood the letter of intent as “acceptance” by the owner and is proceeding with the work.

The owner’s / client’s obligation to pay for work carried out by the contractor has existed from the moment the letter of intent was issued. If payment cannot be made without a “signed” contract, the owner should not have issued a letter of intent. The contract created with the letter of intent can be enforced by either party whether or not a “formal” signed version is ever signed.

Presuming that the administration of the contract is the responsibility of the architect, the application for payment triggers the requirement that the architect process same including issuance of a certificate for payment.

The architect states that the form of contract to be used is CCDC 2. The architect also needs to know and act in accord with the content of any supplementary conditions that were provided to the contractor at the time of bidding since those form part of the contract.

One assumes that the architect has the necessary information from client and contractor required to carry out its role as administrator. That would include any schedule of values / contract breakdown upon which it will base its certification of the value of work completed to date.

If the architect does not have all of the necessary information and / or there is discomfort with the schedule of values as submitted by the contractor, the architect can so state in a covering letter, perhaps noting that the schedule needs review etc. and that subsequent certificates may need adjustment to reflect any changes agreed to.

The architect is bound to fulfill its role as administrator, without favoritism to either party, regardless of the status of any paper work in the client’s organization.

If the contractor is not paid in accord with the contract that is the basis of the letter of intent, the contractor may act in accord with the contract provisions or law, including stopping work, filing a lien etc. Those are the recognized tools at its disposal when it is not paid for the work it has been contracted to do.

An initial invoice / certificate often includes compensation for the required bonds and insurance, and the architect would be wise to assure itself that any required bonds, insurance policies etc. have been delivered by the contractor to the owner, either directly or via the architect (depending on what is required by the contract and any supplementary conditions to it).

Architects are always liable for their professional advice and services. An architect’s professional liability insurance covers damages arising from “errors, omissions or negligent acts” in the performance of those services. If an architect is alleged to have made an error in a certificate, the insurance is there to provide a backstop.

Note: This answer was prepared with the assistance of ProDemnity Insurance Risk Management Department.