Canada: Construction force majeure and alternative relief

What is the most commonly used standard form construction contract used in the country?

The Canadian Construction Documents Committee (CCDC) CCDC-2 form of contract. This contract is commonly used for the design-bid-build project delivery method. The contract is a stipulated price contract between an owner and a prime contractor. 

Clause references and capitalised terms in this section refer to those used in the CCDC form of contract, unless specifically stated otherwise.

Other CCDC forms of contract contain similar terms (for example CCDC 5B for construction management at risk and CCDC 14 for design-build) but should be reviewed separately.

Does the contract include provisions on force majeure?

No, standard CCDC 2 terms do not expressly include force majeure wording. 

While no force majeure wording, the Contractor is entitled to broad time relief and/or additional compensation for events outside of its control.

Does the contract include provisions for alternative relief that may be relevant to projects impacted by COVID-19?

Yes. Standard (“CCDC”) 2 terms providing time relief and/or additional compensation, or termination rights, to the Contractor may be relevant to projects impacted by COVID-19. Standards CCDC 2 terms providing termination rights to the Owner, as well as terms addressing changes in laws and toxic and hazardous substances may also be relevant.

A summary of these provisions is set out below.

Delay Due to Owner or Consultant’s Fault (GC 6.5.1)

“6.5.1 If the Contractor is delayed in the performance of the Work by an action or omission of the Owner, Consultant or anyone employed or engaged by them directly or indirectly, contrary to the provisions of the Contract Documents, then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor. The Contractor shall be reimbursed by the Owner for reasonable costs incurred by the Contractor as the result of such delay.”

With reference to GC 6.5.1, COVID-19 may result in circumstances where either the Owner or the Consultant are unable to meet their obligations under the Contract, e.g. if the individual normally responsible for performing an obligation is under a mandatory quarantine or is ill. The Owner may be in breach of the Contract and would not be entitled to relief. If the breach wasn’t rectified, it could ultimately lead to termination for cause by the Contractor (GC 7.2.3).

Delays Due to Causes Beyond the Contractor’s Control (GC 6.5.3.4)

“6.5.3.4 If the Contractor is delayed in the performance of the Work by any cause beyond the Contractor's control other than one resulting from a default or breach of Contract by the Contractor, then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor…The Contractor shall not be entitled to payment for costs incurred by such delays unless such delays result from actions by the Owner, Consultant or anyone employed or engaged by them directly or indirectly.”

Pursuant to GC 6.5.3.4, delays due to causes beyond the Contractor’s control do not require the event delaying the Contractor’s performance of the work to be unforeseeable, unlike most force majeure clauses.

Measures being put in place by provincial and federal governments are outside the Contractor’s control. Contractors’ productivity may be slowed by social distancing and tightened health and safety requirements. Requirements to self-quarantine, childcare obligations and personal decisions to self-isolate are factors. The latter may not be outside the Contractor’s control, particularly in jurisdictions where construction work has been listed as an essential service.

Stop Work Order by a Public Authority (GC 6.5.2)

“6.5.2 If the Contractor is delayed in the performance of the Work by a stop work order issued by a court or other public authority and providing that such order was not issued as the result of an act or fault of the Contractor or any person employed or engaged by the Contractor directly or indirectly, then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor. The Contractor shall be reimbursed by the Owner for reasonable costs incurred by the Contractor as the result of such delay.”

In provinces and territories where orders prevent construction work from occurring, Contractors may rely on GC 6.5.2. We note that in some provinces, construction work has been listed as an “essential service” but the situation may change.

Termination by Contractor (GC 7.2.2, GC 7.2.3 and GC 7.2.5.)

“7.2.2 If the Work is suspended or otherwise delayed for a period of 20 Working Days or more under an order of a court or other public authority and providing that such order was not issued as the result of an act or fault of the Contractor or of anyone directly or indirectly employed or engaged by the Contractor, the Contractor may, without prejudice to any other right or remedy the Contractor may have, terminate the Contract by giving the Owner Notice in Writing to that effect.”

“7.2.3 The Contractor may give Notice in Writing to the Owner…”

“7.2.5 If the Contractor terminates the Contract under the conditions set out above, the Contractor shall be entitled to be paid for all work performed including reasonable profit, for loss sustained upon Products and Construction Equipment, and such other damages as the Contractor may have sustained as a result of the termination of the Contract.”

There are now orders by public authorities impacting productivity at construction sites across the country. As such, it is possible these orders have already started the 20 Working Day clock with respect to the “otherwise delay” wording in GC 7.2.2.

Toxic and Hazardous Substances (GC 9.2.5, GC 9.2.7 and GC 9.2.8)

“9.2.5 If the Contractor

1. encounters toxic or hazardous substances at the Place of the Work, or

2. has reasonable grounds to believe that toxic or hazardous substances are present at the Place of the Work,

…, the Contractor shall 

3. take all reasonable steps, including stopping the Work, to ensure that no person’s exposure to any toxic or hazardous substances exceeds any applicable time weighted levels prescribed by applicable legislation at the Place of the Work.”

The words “toxic and hazardous substances” are not defined in CCDC 2. Nevertheless, Owners and Contractors may argue GC 9.2 applies to the existence, or potential existence of, a virus at the Place of Work.

Change in Laws (GC 10.2.7)

“10.2.7 If, subsequent to the time of bid closing, changes are made to applicable laws, ordinances, rules, regulations, or codes of authorities having jurisdiction which affect the cost of the Work, either party may submit a claim in accordance with the requirements of GC 6.6 – CLAIMS FOR A CHANGE IN CONTRACT PRICE. “

Most provincial COVID-19 related orders and legislative changes will be captured by the “laws, ordinances, rules, regulations or codes” wording.

Do the laws of the country provide for force majeure relief?

The concept of force majeure does not exist in the common law in Canada and only arises if parties include force majeure clauses in their contract.

Do the laws of the country provide for alternative relief that may be relevant to projects impacted by COVID-19? 

The doctrine of frustration does exist in the common law. If a supervening event arises and it is not addressed by the contract, a party may be able to claim the contract has been “frustrated” if the party becomes unable to perform its contractual obligations (if such inability to perform does not arise from that party’s fault). 

The bar to establishing a claim of frustration is very high. Further, all Canadian common law provinces and territories (other than Nova Scotia) have legislation which governs the consequences of frustrated contracts (see the Frustrated Contracts Act in force in the applicable province or territory).