THE IMPORTANCE OF HOLDBACKS FOR SUBCONTRACTORSBy Audrey Chevrette Lawyer
In construction, contracts between work providers and general contractors include holdback provisions for subcontractors based on the principle of stipulation for another under article 1444 of the Civil Code of Québec.
In Compagnie d'assurances Jevco v. Québec (Procureure générale), 2015 QCCA 1034, the Court of Appeal recently reiterated the work provider's obligation to apply the holdback provisions since failing to do so could result in liability.
When a subcontractor has declared its subcontract to the work provider and the general contractor fails to make the payments owed for work carried out or materials provided, the subcontractor must advise the work provider when the contract includes holdback provisions.
When a holdback provision for subcontractors binds the work provider, it must apply it and withhold the amount owed by the general contractor as soon as a subcontractor claims non-payment.
In the aforementioned case, the Court of Appeal concluded that a subcontractor had a direct right of action against a work provider that did not apply the holdback provision stipulated in a contract upon receiving notice that the general contractor had not paid the subcontractor. In failing to hold back the amounts owed to the subcontractor, the work provider was found to be at fault and liable by the Court of Appeal.
As a work provider, it is therefore very important to apply the holdback provisions in your contracts. As a subcontractor, you must declare your subcontract to the work provider as well as any default in payment by the general contractor.
Should you have any questions when drafting or interpreting a contract or should a dispute arise with a work provider, general contractor or subcontractor, do not hesitate to contact an attorney in our firm, who will guide you in your business management.