NATIONWIDE - CANADA: An Introduction to Construction

Broadly speaking, the Canadian construction industry has experienced differing trends in its various sectors over the past year. After a peak in Canadian residential sector activity as a result of historically low interest rates during the COVID-19 pandemic, growth in the Canadian residential sector has slowed in 2024 as interest rates remained elevated, while the non-residential sector has remained strong due to the large volume of infrastructure projects underway across the country.

Key legal trends and developments impacting the construction sector include the following:

(1) the rise of statutory adjudication as a dispute-resolution mechanism for construction disputes;

(2) case law developments in relation to health and safety obligations; and

(3) the growth of collaborative contracting in Canada.

The Rise of Statutory Adjudication

A number of Canadian provinces have adopted, or are in the process of adopting, prompt payment legislation, which is intended to ensure that parties in the construction pyramid are paid in a timely manner. At a high level, the prompt payment regime requires contractors to provide a “proper invoice” to the owner, which triggers the start of a period leading up to the payment deadline, subject to a right to dispute part or all amounts claimed in the invoice. In conjunction with prompt payment, several Canadian provinces have also adopted mandatory statutory adjudication regimes that are aimed at providing efficient dispute resolution in support of prompt payment. Statutory adjudication contemplates aggressive timelines from the initiation of the dispute to when a determination is rendered, and is interim binding in nature (ie, binding until such time as the parties complete further dispute resolution, such as litigation or arbitration).

In Ontario, parties are increasingly relying on adjudication to resolve construction disputes in various sectors, including residential, commercial, industrial and public construction, as well as in the transportation and infrastructure sectors. In 2023, the use of adjudication in these sectors each grew by over 100% as compared to the previous year, except for the residential sector (which grew by approximately 50%). Such disputes typically pertain to small to medium-sized construction projects, with the average amount claimed in adjudications in these sectors ranging from approximately USD200,000 to USD600,000. Nevertheless, adjudication has continued to grow and is expected to continue gaining popularity, including in respect of larger projects.

Health and Safety Case Law Developments

In addition, health and safety legislation and regulations (which are a provincial responsibility), and in particular the responsibilities of employers, constructors and owners, have recently become a topic of interest in Canada after a recent decision from the Supreme Court of Canada.

Most of the provincial and territorial employment legislation in Canada establishes minimum mandatory standards in relation to termination, work site conditions (including health and safety), wages and, in the case of unionised environments, bargaining and other labour-related issues. Some elements of this legislation exempt construction workers from certain provisions in order to allow the construction industry to self-regulate in a way that best suits the industry. On a construction site, in addition to being an employer (of its own employees) under health and safety laws, either the contractor or the owner may be the “constructor”, with specific health and safety obligations imposed under the relevant legislation.

However, in R v Greater Sudbury (City), 2023 SCC 28, the Supreme Court departed from the traditional understanding of the construction industry that a project owner can delegate its statutory health and safety obligations to their general contractor or construction manager. Instead, the Court confirmed a “belt and braces” approach to interpreting occupational health and safety legislation, thereby imposing concurrent, overlapping and broad duties on multiple workplace participants (including the owner). This approach indicates that failures by one party cannot necessarily be used to absolve others from their safety obligations, although it remains open for employers to raise a due diligence defence if they are presumptively liable for occupational health and safety violations. For the construction industry, this case has given rise to increased concerns about potential liability.

The Growth of Collaborative Contracting

For many large public infrastructure projects in Canada, a public-private partnership (“P3”) model is used. While these may take many different forms, generally, a government authority – as owner – contracts with a special purpose entity formed for the project by several sophisticated domestic and/or international contractors. One of the hallmarks of the P3 model is a powerful risk transfer from the owner to the special purpose entity for a fixed price. The special-purpose entity (commonly known as a “Project Co”) then contracts with a design-builder, which in turn subcontracts with trade contractors and suppliers. A Project Co may also be responsible for the long-term maintenance and/or operation of the finished project (depending on the project delivery model). Each P3 project includes a financing component, whereby the Project Co provides all or part of the financing for the design and construction.

Given market dynamics and increasingly complex projects, various public entities are exploring collaborative contracting such as alliancing and the integrated project delivery model of construction contracting (already used more regularly in other common law countries such as the USA, England and Australia), which encourage increased collaboration between public- and private-sector participants and risk sharing (as opposed to risk transfer) between public and private participants. Specifically, the key features of collaborative contracting include collaborative decision-making and leadership, as well as risk and reward sharing through various optimisation mechanisms.

Though collaborative contracting continues to garner increased attention in Canada, public entities are either implementing them on only a limited basis or are still in the process of exploring their use. For example, in British Columbia, an alliance model has been utilised by Infrastructure BC for the Cowichan District Hospital Replacement Project, and in Ontario an alliance model has been implemented by Infrastructure Ontario in relation to the GO Rail Expansion Union Station Enhancement Project.