Bonding with the Queen over construction projects

22 July 2019

This article was originally published in the OCA Construction Comment Magazine in May 2019.

Construction liens are arguably the most useful legal tool to ensure that contractors and workers are paid. Arising from the moment services and/or materials are provided to a construction project, liens provide the parties who performed the work and/or supplied the materials a legal claim to the property. However, can one register a lien against a property owned by the federal Crown?

The short answer is no. The enforcement of liens on Her Majesty's properties is not permitted in Canada due to the doctrine of interjurisdictional immunity, which provides that provincial legislation, such as the Construction Act, cannot intrude on a federal undertaking. Given that the ultimate remedy under provincial legislation is the sale of the liened property, allowing liens to be enforced would amount to enabling provincial legislation to impede on federal undertakings. For example, the British Columbia Court of Appeal in Vancouver International Airport Authority v British Columbia (Attorney General) 2011 BCCA 89 concluded that a lien could not be registered against the Vancouver Airport under provincial legislation since the provincial law cannot affect a company that is in the exclusive domain of the federal government (i.e. aeronautics) and which is a vital element in the exercise of its jurisdiction (i.e. an airport).

While it may not be in the best interests of Canadians to permit the sale of an airport to pay off contractors and workers' unpaid trades, it is definitely in the interest of the construction industry that contractors and workers' payments be protected. As such, what is the alternative to construction liens? The answer lies in labour and material payment bonds (LMPB).

Usually posted by the contractor for the benefit of subcontractors and suppliers, a LMPB guarantees the payment of services and/or materials supplied for the bonded project by the bonded contractor. As such, a claim on the bond may be made if the bonded contractor fails to pay the subcontractor and/or supplier and does not have any legitimate rights to deny payment. Unfortunately, one must note that unlike under provincial liens' legislation, protection under a LMPB generally does not extent to lower tier subcontractors and suppliers who do not have a direct contract with the bonded contractor. However, as every contract (bond) is different, one should not make any assumption and one should attentively review the bond specifications before making any conclusions.

While there is presently no federal legislation requiring that a LMPB be posted on construction projects involving the Queen, some federal ministries have adopted general policies providing for such requirement (i.e. Fisheries and Oceans Canada). One should always inquire as to whether such general policy exist and is applicable before entering into a federal construction project.

In contrast, in Ontario, the modernized Construction Act provides that a contractor who enters into a "public contract" with the provincial Crown must provide the owner with a mandatory LMPB and performance bond for all public contracts for projects to which the modernized Construction Act applies and where the contract price between the owner and contractor is above $500,000.

To conclude, a prudent subcontractor and/or supplier should inquire as to whether a LMPB exists and, if so, what is the extend of its coverage, as part of its risk and bid evaluation before entering a procurement process for any significant project and, in particular, the federal or the provincial Crown.  The Construction Act provides that stakeholders have a right to that information under Section 39: stakeholder should not be afraid to request it; nor should there be any reluctance to deliver a copy.

This piece was co-authored by Stephanie Dionne-Parent during her time as an Associate at Gowling WLG.

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