By Victor Bandiera
Most Canadian Construction Association (CCA) and Canadian Construction Documents Committee (CCDC) contract forms and other public contract forms require contractors to apply for payment monthly. This is based on an agreed schedule of values, a breakdown for payment purposes or the quantity of work in place on unit price contracts. This breakdown is usually agreed upon before the first billing.
The contractor submits their request to the payment certifier (usually the architect or engineer of record) under the prime contract at month end. If the contractor is a subcontractor, they are usually required to submit an application for payment on the 25th of the respective month. This allows the prime contractor to include it in the billing at month end.
In the last 12 months, some contractors have not applied for payment due to some unforeseen issues. Some of the issues were:
- The previous month’s payment was not certified;
- There was a delay in processing or the payment was not made;
- A lien arose, which led to adding additional change orders, in turn, causing delay or discrepancy in amounts or limited progress of work or deficiencies.
None of the reasons listed above should prevent a contractor from submitting a subsequent monthly payment application for certification.
What to include in your billing?
Your billing should clearly show the period being billed (for example, June 1, 2019 to June 30, 2019), the date the invoice was prepared and the relevant contract references, including the owner’s name. Also, don’t forget to include the current revised contract price calculation being the total of the original contract price, but showing any contingency or cash allowances separately, as well as all approved change orders (not just those being billed against).
Your billing usually should include columns for:
(A) The total contractual amount for the line item;
(B) A total to date against the line item in dollars, as well as a column for quantities of unit price or percentage complete to show progress;
(C) The total to date from previous month (in dollars and quantities if applicable);
(D) D = B – C: the difference being the current month’s progress.
Totals of each column transfer to a summary page and the application of holdback retained. If holdback is released, include a separate line. Naturally, the rate of applicable tax must be shown as a separate line and total of cheque expected from owner should also be provided. If more than one month is outstanding prepare a statement of account showing all unpaid amounts at month end.
Time is of the essence
A payment certifier is to certify the work in place usually within 10 days of application for payment. If the contractor does not apply, the payment certifier does not need to do anything. A payment certifier has to fulfill his/her contractual and professional obligations as an unbiased party.
Hypothetically, if an owner fails to make a payment for a certificate of payment issued by a certifier due to a lien, this does not preclude a contractor from billing the subsequent month and the payment certifier from preparing another certificate. There can be more than one unpaid monthly payment certificate. Also, most contracts require the payment certifier to respond in writing to an application. If the payment certifier does not respond, please review what your contract says about notifying the owner in default for non-certification if permitted, and if necessary, discuss with your construction lawyer promptly, as you have lien rights that are time sensitive. If you are a subcontractor you might be able to make a Labour and Material payment bond posted, which also has timelines to make a claim.
It is always important to bill monthly, as that serves as an historical record of the contractor’s progress of work and of when change orders were added to increase scope, even if not performed. If a contractor does not bill, he or she will not know of any payment issues with the owner. Naturally, if the contractor is not promptly paid by the owner, the contractor needs to consider noting the owner in default for non-payment (as the owner usually needs to pay within seven to 10 days of certificate of payment, according to most contracts) but also interest will run. Keep in mind, the contractor probably does not want to work for more than a month and finance the work himself/herself, as that could lead to delays of payment and effect banking, bonding, subcontractor and other relationships.
If certification is delayed by others and it is suggested that the contractor group two months together, the actual progress for the first month is lost. It is usually a contract requirement to pay that month earlier as well.
In Ontario, this will be even more important with respect to recent changes to the Construction Act (formerly Construction Lien Act), including proper form of billing as it relates to new prompt payment provisions and adjudication, which could include payment disputes. Payment is one of the most important things on a project. The contractor or subcontractor must do the billing well and timely to avoid cash flow issues and disruptions further down the contractual chain.