Supreme Court upholds municipalities’ rights to impose “reprisal clauses” in construction contracts

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Ontario Construction Report staff writer

The Supreme Court of Canada has dismissed a BC contractor’s appeal relating to the use of “reprisal clauses” in municipal procurement policies, effectively legalizing the practice across the country.

The Ontario General Contractors Association (OGCA) says the “reprisal clause” problem may be especially acute in Ontario because of circumstances requiring adjudication under the Ontario Construction Act that may force contractors to experience “reprisal clause” penalties beyond their control

Contractor J. Cote & Son Excavating had tried to get the courts to overturn a clause in tender documents used by the City of Burnaby, which stated that the city would not accept tenders from any party that is, or has been within the last two years, involved in legal proceedings initiated against Burnaby arising out of a contract for works or services.

“The clause effectively forces consultants or contractors who may have a dispute with the city to choose between pursuing their legal rights and bidding on city contracts for the next two years,”  Canadian Construction Association Mary Van Buren said in a Dec. 16 statement.

The CCA says: “This ruling has serious implications for contractors; it condones placing contractors on a two-year blacklist that bans them from bidding on city projects.”

“The inclusion of these types of clauses in contracts essentially allows contractors to be financially punished for exercising their legal rights,” Van Buren said. “The result is contractors are deterred from accessing the courts to enforce their legal rights because they fear being banned from future participation in projects.”

The Supreme Court’s decision effectively means that there is no constitutional barrier to municipalities using reprisal clauses.

In its statement, CCA says it will continue to closely monitor any developments as the association believes this case ruling could have major implications for the construction industry in all of Canada.

The OGCA, representing the province’s general contractors, says mandatory adjudication provisions within the Ontario Construction Act, may add to the problems in this problem.

“Reprisal clauses restrict competitive bids and drive up the cost of construction because they force contractors, who may have a dispute with the city, to choose between pursuing their legal rights and bidding on future city contracts,” the OGCA says in its weekly eletter released on Tuesday.

“This ruling has serious implications for contractors because it condones blacklisting contractors from bidding on city projects simply because they exercised their constitutional right to access the courts,” the OGCA says.

“We anticipate that the recent introduction of prompt payment legislation will increase the number of adjudications, triggering a jump in reprisal policies being applied.

“Under the new Construction Act, the requirement to trigger an adjudication is not an option, and in fact, is mandatory under certain circumstances. Therefore, a subtrade or a general contractor, following the law as they must do, can then be disqualified from any future bidding with that owner through the application of the reprisal clauses,” the OGCA says.

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