The Construction Lien Act & IST

Quality, Consequences and the Construction Industrial Complex (part 291).???

The Construction Lein Act is generally a North American phenomenon that was bought in for good reasons, has led to unintended consequences and IMHO, needs amendments.

A Construction Lien is a claim made against a property by a contractor or subcontractor who have not been paid for their work. Their purpose, is to protect professionals and contractors from the risk of not being paid for services rendered. A Construction Lien makes it difficult to sell or refinance a property because it makes its title unclear and can force a sale of the property to provide compensation.

The Construction Lein Act was enacted to prevent egregious abuse of contractors by owners. This was, and is, a good reason for legislation. As a business owner, I have used it to get paid. However, I have witnessed several projects where the main contractor has used the threat of a lien to require Substantial Performance when the building and its systems do not work correctly.

This is possible because of the 3-2-1 formula used within the Construction Lien Act to certify complete, a head contract or subcontract. For example, in Ontario Canada, a project is substantially performed if the work to be done under the contract is capable of completion or correction at a cost of not more than:

• 3% of the first $1,000,000 of the contract price,
• 2% of the next $1,000,000 of the contract price, and
• 1% of the balance of the contract price.

On a $50m project, this formula can result in substantial performance with $530,000 of work outstanding. Included in this outstanding work would be systems commissioning, controls tuning and As Built record documentation. Using this example, which I personally experienced, the outcome was:?

• Systems commissioning, controls tuning and As Built record documentation became punch list items.
• The owner was obliged pay up, including 50% of retentions, and move into a building that did not work correctly, based on issuance of Substantial Performance.
• The building was not fully commissioned for another 10 months post occupancy and the As Built Documentation was 12 months late.

On new construction, Substantial Performance is in the gift of the architects and engineers based in part on their assessment of completion and suitability for occupancy. As completion draws near, the architects and engineers come under pressure to please people and grant Substantial Performance because this leads to occupancy and payments.?

The question is, "does suitability for occupancy, require building systems to be fully commissioned, IST complete and As Built documentation delivered?"

On mission critical and triple A buildings, I say yes.?

A conflict has arisen due to complexity plus high technology in modern buildings. The wish to retain liability in "clear silos" is in conflict with the need to test building systems performance and their interfaces. For example, the fire alarm system touches the elevators, access control, HVAC, lighting, electrical and stand-by power systems. Is the fire alarm technician responsible for physically testing?/ verifying all these interfaces? Not currently.

In North America, contractual conflict and lability issues are compounded by a litigious culture plus the Construction Lien Act. Until the Construction Lien Act is changed to recognize systems commissioning, integrated systems testing (IST - NFPA 4) and building performance outcomes, silos will persist and nobody will own building performance outcomes.?

There is a "conspiracy of unawareness" in building design and construction that leads to silo thinking and is not compatible with highly serviced, complex buildings.?

Substantial performance and occupancy need to be legally tied to certified completion of building commissioning and IST. IMHO, the Construction Lien Act is the way to do it.?

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BlueRithm Investor & Advisor

Advisor DCM Inc

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