NATIONWIDE - CANADA: An Introduction to Construction

Over the past year, the Canadian construction industry has seen varied trends across different sectors, while simultaneously being influenced by broader national and global developments. Following significant shifts over the past three years, interest rates have gradually dropped and stabilised within the past twelve months, easing financial conditions somewhat. This key concern has been replaced, however, by the introduction of tariffs across the global economy.

The principal legal trends and developments impacting the construction sector include the following:

• the effect of tariffs on the Canadian and global economies;
• the continued growth of statutory adjudication as a dispute resolution mechanism for construction disputes; and
• the increase in collaborative contracting as a project delivery model.

Tariffs

The persistent and unpredictable cycle of imposition and removal of tariffs by global trade partners on building materials (including, for example, steel and aluminium) exported to the United States and imported into Canada has had adverse effects on the entire Canadian construction industry (with especially significant impacts on residential and infrastructure projects), resulting in significant cost increases and reshaping project risk as well as contractual negotiations.

Given that Canada is a net importer of many material inputs, the primary impact has been on budget certainty. Bidding on long-term projects has become less predictable, as the threat of new tariffs being imposed after a contract is signed has made material price escalation clauses a point of contention in contract negotiations. Parties are increasingly resistant to bearing this risk, leading to protracted negotiations and, in some cases, delays as parties struggle to find an acceptable compromise. This has also resulted in disputes under contracts that predate the introduction of tariffs, with parties engaged in interpreting force majeure clauses, change of law clauses, and other price adjustment provisions that in many instances do not specifically deal with this issue. Increased due diligence for procurement and supplier agreements has also become a priority. In addition to such clauses setting out which party is responsible for bearing the risk of a price increase, there has also been a focus on including requirements as to how the impacted party must demonstrate that there was a direct impact on the price of the goods or materials due to the tariff(s).

Consequently, parties have moved to reshape supply chains, with a push to source materials domestically (including through efforts to reduce interprovincial trade barriers) and from alternative onshore suppliers in order to limit tariff exposure. This has also spurred innovation in alternative construction methods (such as modular building and mass timber), as well as stockpiling of key materials.

The Continued Growth of Statutory Adjudication

A number of Canadian provinces (as well as the federal government) have adopted or are in the process of adopting prompt payment legislation, which is intended to ensure that parties within the construction pyramid are paid in a timely manner. In conjunction with prompt payment, several Canadian provinces (and the federal government) have also adopted mandatory statutory adjudication regimes, which are aimed at providing efficient dispute resolution in support of prompt payment. Statutory adjudication contemplates aggressive timelines from the initiation of the dispute to determination being rendered, and it is interim binding (ie, 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 2024, the use of adjudication in certain sectors (such as industrial projects and public building projects) grew by over 40% as compared to the previous year. Such disputes typically pertain to small- to medium-sized construction projects, with the average amount claimed in these sectors ranging from approximately CAD200,000 to CAD600,000. Adjudication has continued to grow, as the total, aggregate amount claimed in adjudications in 2024 was approximately CAD171 million – a significant increase compared to the aggregate claim amount of approximately CAD68 million in the previous year.

The recent amendments to Ontario’s Construction Act (which are yet to come into force) will broaden the availability of adjudication, by (among other things) expanding the list of prescribed matters that can be adjudicated and broadening the pool of adjudicators. Notably, these amendments also require the publication of adjudication determinations (like court judgments).

From a legal perspective, case law on statutory adjudication continues to emerge at a consistent pace, with Ontario producing the most case law (unsurprisingly, given that it has the most mature regime in Canada). Generally speaking, adjudication case law has focused overwhelmingly on questions of procedural fairness and the consequences of non-compliance with the adjudication regime.

Increased Use of Collaborative Contracting Models

For many large public infrastructure projects in Canada, the public-private partnership (“P3”) continues to be a popular project delivery model. While these can 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 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, and the 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.

However, public entities in Canada have continued to explore collaborative contracting models, such as alliancing and integrated project delivery (IPD), which are already used more regularly in other common law countries such as the USA, UK and Australia. These models encourage increased collaboration 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. Depending on the form of contract, it is also common to include a “no disputes” provision that prohibits disputes between parties to the construction contract (which would include, for example, the owner, the contractor, the designer, consultants and key sub-trades). Fundamentally, the key distinguishing feature of alliancing and IPD is a non-adversarial approach between the contracting parties.

Public entities appear to be growing more comfortable with the use of collaborative contracting. Overall, interest in collaborative contracting continues to grow, and will likely continue to grow in the coming years.