Canada Update: From idea to reality: planning a construction project from a legal perspective

We have all, at one time or another, witnessed the poor execution of a great idea.

The first film adaptation of Frank Herbert’s masterpiece Dune, by David Lynch in 1984, is a prime example of this phenomenon—but the same thing can happen with construction projects.

How can we make it work?

Here are some elements that, while not exhaustive, can help limit the risks of failure. 

The importance of the pre-construction phase

If there is any consensus within the construction industry community, it concerns the importance of devoting sufficient qualified resources, both human and material, to the pre-construction phase.

This stage, which ensures better quality documents (i.e., statement of conceptual requirements, plans and specifications, preliminary studies, budgets, provisional schedules, etc.), is too often neglected for budgetary and scheduling reasons.

However, the amount of attention devoted to this phase will be inversely proportional to the amount of attention that will have to be directed to making changes during the call for tenders or, even worse, the construction phase.

In principle, changes during execution:

• will cost more, because
• they will not be subject to the competition process;
• they will require changes to the planning and coordination already underway with the contractor, subcontractors and suppliers;
• they will be subject to the market conditions prevailing at the time, as opposed to those prevailing at the time of the call for tenders, including changes in the market for labour, equipment and materials;
• will require more time (including back and forth between the owner, professionals, contractor, subcontractors and suppliers), with each critical day impacting overhead costs and extending the footprint of the site stakeholders;
• will, incidentally, result in more disputes between the parties, thereby causing relational impacts, further delays and additional costs.

In a market where the best players have no trouble getting contracts, it is becoming increasingly difficult to attract them under these circumstances.

The importance of delivery and payment methods 

Identifying the delivery method remains essential, but it is rarely accorded the importance it deserves.

General contracting, management for services, management for services and construction, design-build, integrated delivery, and hybrid methods (partial or progressive design-build, pre-procurement and construction by lots with or without assignment, etc.) each have their advantages and disadvantages with a butterfly effect in terms of risk.

The same is true for payment methods. Risks related to estimation errors; changes in the market and the cost of labour, equipment and materials; subcontractor insolvency; and other economic risks will be allocated differently depending on whether lump sum, unit, cost plus or target price is chosen, with or without a guaranteed maximum price and/or sharing of savings and overruns.

The various risks can be addressed through insurance, bonding, subcontracting, risk and contingency reserves, etc., but they will have to be treated consistently according to the principle that more risk = more reward.

To identify the method best suited to their needs, clients should determine, among other things:

• the applicable regulatory framework, especially for public sector clients;
• the role they are willing to assume (project management, holding of licenses, etc.);
• the degree of control they wish to have over the design, beyond stating their conceptual requirements, or even the desire to obtain several different preliminary concepts that meet, in principle, those requirements;
• the degree of competition they wish to employ (overall design and work, all work, split by lots, etc.);
• the space and time required for technical equipment, including whether they wish to use various alternatives such as pre-procurement with or without subsequent disposal;
• the cost-benefit analysis of coordinating certain stakeholders at the pre-construction phase;
• whether or not work can begin before the design has been finalized and the Class A budget and schedule estimates have been obtained (i.e., whether fast-tracking is an option);
• etc.

When in doubt, we generally recommend opting for a method that favours the coordination of stakeholders at the pre-construction phase in order to benefit from their respective expertise and to improve the quality of the conceptual documents before the delays and costs associated with each modification are multiplied by the reality of a construction site in full operation.

We hope that these few tips provide clarity and will allow you to be more successful in executing your projects.

This article was first published on Propulsion website, November 2021.

By Jean Patrick Dallaire, Langlois, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact canada@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.