Holdbacks

Question 1

Payment flow in construction

Answer 1

In most cases flow from the top of the pyramid down

Question 2

How were holdbacks created?

Answer 2

Provincial lien legislation created a system of holdbacks

Question 3

How does system of holdbacks work?

Answer 3

under which each level must hold part of the payment back from the level immediately below it in the construction pyramid for the benefit of the party two levels below

Question 4

Holdback

Answer 4

statutory amount required to be held back to limit exposure under lien legislation

Question 5

Who is required to holdback in NB?

Answer 5

Just the first level of the pyramid (statutory owner)

Question 6

Holdback becomes

Answer 6

a fund for which claimants (sub-contractors) can make use for to satisfy outstanding amounts

Question 7

What happens if owners don’t holdback?

Answer 7

may have to pay the holdback percentage again if there is a lien

Question 8

Subcontractors have a…

Answer 8

charge against the land and the holdback

Question 9

Finishing holdback

Answer 9

• NB doesn’t have

- Additional percent held back after substantial performance

Question 10

Holdback represents

Answer 10

a percentage of the value of the work done at the time of payment

Question 11

What basis is holdback calculated on?

Answer 11

Holdback calculated on the basis of the contract price

Question 12

How to calculate if no contract price?

Answer 12

calculated on the basis of the actual value of the work, services, or materials done

Question 13

How to ascertain actual value of work?

Answer 13

usually an ascertainable value of the materials supplied, hours worked, and services rendered

Question 14

Amount of holdback…

Answer 14

accumulates and increases as the work progresses

Question 15

What if the contractor abandons the project prior to completion?

Answer 15

the owner need only hold back the percentage calculated on the value of the work actually carried out

Question 16

2 numbers for holdback in NB

Answer 16

• Under $15,000 the percentage to be held back is 20%

- $15,000+ the percentage is 15% (PRACTICALLY THE ONLY ONE USED)

Question 17

Why is 15% the norm in NB?

Answer 17

• *VERY RARE TO HOLDBACK UNDER $15,000**

- Under this amount practically speaking most contracts won’t abide by holdbacks and won’t accept the job

Question 18

What does holding back 15% do if sub doesn’t know about the lien?

Answer 18

Paying 85% of the value of work to the general contractor removes the lien abilities of the subcontractor beyond 15% if they don’t know about the lien

Question 19

What if owner gets notice of a claim for a lien prior to reaching 85% payout of contract price?

Answer 19

If the owner gets notice of the lien claim prior to reaching the 85% payout of contract price, the lesser of the claim for lien or remainder of contract price must be held back

Question 20

Retention period

Answer 20

The owner must retain the holdback until the job is completed and for a specific period of time after that

Question 21

What does the retention period represent?

Answer 21

That period of time represents the amount of time for which subcontractors could register a lien

Question 22

How long is the holdback retention period in NB?

Answer 22

60 days after completion or abandonment

Question 23

What happens after retention period?

Answer 23

Holdback will be released after retention period

Question 24

What about if nothing is owed to the contractor?

Answer 24

Statutory holdback must be kept even if there is nothing owing to the contractor by reason of breach or abandonment of the contract

Question 25

Several contractors

Answer 25

In cases where the owner is contracting with several contractors, and liens are filed under several contractors, the owner is going to need to have a separate account for each holdback

Question 26

In cases with several contractors

Answer 26

each lien claimant will be confined to that separate holdback, they can only go after holdback from the contractor that hired them

Question 27

No setoff against the holdback

Answer 27

• Holdback amounts cannot be used to set off costs for completion, damages, or any other purposes
• Ex: owner cannot say to contractor “you did deficient work so I am going to take money from holdback”
• Can be setoff after 60. day period of retention and funds released

Question 28

Notice of Lien

Answer 28

If the owner gets notice from a lien claimant that will trigger a duty for the owner to retain the face value of the claim from the amount payable to the contractor in addition to the original percentage

Question 29

Notice of lien must

Answer 29

be in writing + must contain a sworn statement with respect to the amount of the lien

Question 30

Payment made under notice of lien section does not…

Answer 30

disentitle lienholder to a claim for any balance remaining payable from the originally retained money

Question 31

How can the contractor deal with the lien claim?

Answer 31

1. Resolve the non-payment issue with the subcontractor
2. Vacate the lien (paying money into court in the amount of lien claims, which will then attach the lien to that money and clear that title)

Question 32

A holdback is not

Answer 32

A trust