Real Estate

Procuring contractor services Part 3: the service agreement

By Staff

In the final instalment of a three-part series, Toronto condominium and commercial litigator Megan Mackey discusses service agreements and penalty clauses.

Securing a contractor for a project is one of the most important jobs a condominium corporation’s board is tasked with, Toronto condominium and commercial litigator Megan Mackey tells

In this three-part series, Mackey, a partner with Shibley Righton LLP, shares some of her tips to help the process run more smoothly.

After selecting the preferred bidder, the condominium must get everything in writing in the form of a service contract, she says.

To ensure the time and effort taken to draw up detailed tendering documents is not wasted, Mackey says it’s crucial that the final terms of the contract reflect the scope and timing of the project.

In addition, she says it’s important that both parties are on the same page when it comes to expectations for the final product.

For example, Mackey says many condominium boards enter renovation projects with the aim of exploiting government rebates designed to encourage energy-saving behaviour. However, the eligibility rules are often complicated and strict, she says.

“I have had clients who heard about rebates, went through the project, and then found out that they had missed the deadline to apply, or failed to use the right materials,” Mackey says. “All those details need to be addressed up front in the service agreement, including whether the contractor is expected to apply for them on the board’s behalf.

“If the rebate is important to the condo, then I’d suggest including in the contract some kind of financial repercussion to the contractor if they are responsible for the failure to qualify,” she adds.

Even without government rebates, Mackey says condo boards are frequently motivated by the potential savings that come with more modern retrofits.

When the board is persuaded by promises made on behalf of the successful bidder, she says penalty clauses included in the service contract can also serve as a useful enforcement mechanism.

“Many of our clients have purchased lighting retrofits, for example, where contractors promised all sorts of energy savings and claim the equipment will pay for itself within a few years,” Mackey says. “In some cases, the actual savings came nowhere near to meeting those projections.”

If the dollar value of savings is important to the board, she says the service agreement should spell it out.

“If the contract isn’t properly drafted, then there’s not much you can do about it,” Mackey says.

For Part 1 in the series, when Mackey discussed best practices for the tendering process, click here.

For Part 2 of the series, when she looked at how to select your winning bidder, click here.

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