Building Contracts

Elite Agri Solutions strives to provide background information on topics which are hard to research. In cases where no reputable print resources were available for us to reference, we interviewed industry experts, so it is inevitable that the contents of this document will contain inaccuracies and bias. Use this as a resource to help you ask the right questions, not as a source of definitive answers. Elite Agri Solutions and its employee will not be responsible for the consequences of any decision made based on this guide. Where text or data has been copied directly, the sources have been noted, otherwise it can be assumed that all the information in this guide has only been curated by Elite Agri Solutions and is not our original property.

Information in this document has been gathered from the Canadian Farm Builder’s Association, Canadian Construction Documents Committee, Canadian Construction Association, and other sources.

 

Many agricultural buildings have fixed deadlines that need to be met, whether it be season dependent ( such as getting a silo up before harvest), or contract dependent (such as placing a flock of broilers on a certain day).

It is important to ensure that you anticipate how long the build will take and account for some delays. It is equally important that any contractors are equally committed to the deadlines as well.

The best way to ensure this is by having a robust contract that details who is responsible for each component, when each component needs to be complete and what the penalties are for falling short of the contract.

According to the Canadian Farm Builder’s Association Guidelines, these are the minimum items that should be included in a written contract:

  • Name of client and contractor
  • Site information, name of registered owner of site
  • Source of financing
  • Authorization to obtain credit information
  • Building cost and payment schedule
  • Building plans and specifications
  • Owner’s responsibility list
  • Contractor’s responsibility list
  • Signatures of Both parties

Bonding

A construction bond is an agreement between a surety, a principle and an obligee, where the surety guarantees that the principal will fulfil its obligations to the obligee. In exchange for this guarantee the surety charges a fee. The bond is triggered when the principal defaults on its obligation to the obligee regardless of the reasoning. The most common type of construction bond for an owner to enter into is a performance bond which guarantees that the contractor will perform all obligations made under the contract.

Canadian Construction Documents Committee (CCDC)

The CCDC provides for purchase documents that are industry standards to provide fairness for all parties involved in construction projects. These include a variety of contract and agreement styles. The following descriptions come directly from the CCDC website. Copies of any of these contracts can be obtained from a variety of construction associations across Canada. A full list can be found on the CCDC website.

Stipulated Price Contract:

“CCDC 2 -2008 Stipulated Price Contract is a standard prime contract between Owner and prime Contractor that establishes a single, pre-determined fixed price, or lump sum, regardless of the Contractor’s actual costs.”

Stipulated price contracts are the most common type of contract used for farm buildings.

Master Agreement Between Owner and Contractor

“CCDC 2MA – 2016 Master Agreement is developed to meet the needs of Owners with an on-going construction or maintenance program: to enter into specific work arrangements quickly and easily, without having to review and re-negotiate general terms and conditions for each work order.

The Master Agreement is a contract form between Owner and Contractor that is applicable for a defined period of time and is intended to establish contractual terms and conditions (excluding scope, time and cost) for multiple projects during that time period.  Each project will be ordered by means of Work Authorizations, that define the project specific requirements like scope, price, time.”

Cost Plus Contract:

“CCDC 3 – 2016 is a standard prime contract between Owner and prime Contractor to perform the required work on an actual-cost basis, plus a percentage or fixed fee which is applied to actual costs.”

Unit price contract:

“CCDC 4 – 2011 Unit Price Contract is a standard prime contract between Owner and prime Contractor to perform the required work for a pre-determined, fixed amount for each specified unit of work performed. The total price is determined by multiplying the unit price by the actual, measured quantity of work performed for each specified unit.”

Construction Management Contract – for Services

“CCDC 5A – 2010 Construction Management Contract – for Services is a standard contract between Owner and Construction Manager for which the Work is to be performed by Trade Contractors. The Construction Manager acts as a limited agent of the Owner providing advisory services and administering and overseeing the contracts between the Owner and Trade Contractors.”

Stipulated Price Contract for Trade Contractors on Construction Management Projects

“CCDC 17 – 2010 Stipulated Price Contract for Trade Contractors on Construction Management Projects is a standard contract form between Owner and Trade Contractor to perform the Work for a single, pre-determined fixed price, regardless of the Trade Contractor’s actual costs. It is specifically for use where the project is performed under the CCDC 5A Construction Management method of contracting.”

Construction Management Contract – For Services and Construction

“CCDC 5B – 2010 Construction Management Contract – for Services and Construction is a standard contract between Owner and Construction Manager to provide advisory services during the pre-construction phase and perform the required Work during the construction phase.

At the outset, the Work is performed on an actual-cost basis, plus a percentage or fixed fee which is applied to actual costs.  The parties may agree to exercise the following options: Guaranteed Maximum Price (GMP), GMP Plus Percentage Cost Savings, and conversion into a Stipulated Price Contract.”

Project Financial Information

“CCDC 12 – 1994 Is a model form to assist the Owner in showing that financial arrangements have been made to fulfill the Owner’s obligations under the contract (e.g. CCDC 2).”

Canadian Construction Association

The Canadian construction Association (CCA) offers an alternative standard contract for stipulated price contracts and sub-contracts as well as various guides which are geared towards contractors. Descriptions of these documents can be found on the CCA website and can be purchased from many of the same outlets as the CCDC documents.

Project Delivery Models

Design-Bid-Build

The most common source of disputes in the building process is when a builder runs into unexpected cost or time overruns. The best way to manage this is to have the design finalized in as much detail as possible and provide this to various contractors for the bid process. A quote based on engineered plans will be much more accurate than a quote based on a back of the envelope sketch. It is much easier to change specification on paper than on the jobsite. Working with an engineering firm and perhaps a sector specific expert, plans can be reviewed and refined multiple times before bids are called for. Contractors then can give a confident bid, ensuring the price will only change significantly if changes are made to the design. The disadvantage to this is that the contractor has no input during the design phase, potentially leading to over-design.

If acting as your own general contractor (which has legal implications under the Ontario Occupational Health and Safety Act) it is advisable to use this method when looking to bids from sub-contractors. A farmer typically wouldn’t have nearly the amount of experience as a hired general contractor, so when asking for bids from sub-contractors having a finalized design plan will allow all subtrades to have a clear understanding of what they are being asked to bid on.

The long lead time and upfront design costs prior to receiving any quotes makes this best suited to methodical long-term plans. It might not be the best method for ‘rush’ jobs or when the value of a rough quote will influence whether the project is undertaken.

Design-Build

In Ontario there are many contractors who specialize in farm buildings and have a wealth of collective knowledge, they can provide important insight into the constructability of a design. Many of these contracting firms either have an engineer/designer on staff or work closely with a third party. In this model you would go directly to the contractor and they would provide design, project management and building services as a complete package. The disadvantage to this is that each design-build firm would be giving you a quote based on a different design or different range of services. This makes it difficult to directly compare the value of each bid. It is not very common to use this model if the farmer is acting as the general contractor. If building a structure that falls under the requirements of not needing professional engineering the design-build method may be well suited. If building without professional engineering certain building components need to be designed by a ‘competent designer’ and an experienced farm builder could fulfil this requirement.

Construction Financing

Because of the lengthy nature of the building process, construction loans typically have the common feature of requiring no payment on the principal until the project is complete (typically 18 months). After the project is finished these loans are converted into other financing options without penalty. A progress draw mortgage is one option for financing where funds are released in stages based on the completion of the project. An appraiser will be required to confirm completion of each stage before the money is released.