By Catherine E. Willson, B.A., LL.B., Counsel at Goldman Sloan Nash & Haber LLP with the assistance of Stefanie Lima, M.A., G.D.L., Articling Student at GSNH.
Simply put, a construction manager works WITH the owner of the project and manages the trades, while a general contractor works FOR the owner and enters into contracts directly with the trades. The confusion arises when a contractor muddies these two roles.
What is the difference between a construction manager and a general contractor?
A construction manager acts as an independent advisor to the owner and is retained to supervise and assist with the administration of the pre-, post-, and construction phases of the project based on the design, schedule and budget provided by the owner. A construction manager does not contract directly with the trades nor does he / she pay the trades. The owner does this on the advice of the construction manager.
In contrast, a general contractor is tasked with completing the project in accordance with the design and specifications, and within the schedule and budget specified in the contract. A general contractor hires and pays the trades. The owner’s only contractual relationship for the construction phase is with the general contractor.
Whether a company is deemed to be a general contractor is highly dependent on its relationship with its trades. The Ontario Superior Court of Justice in Pegah Construction Ltd. v Panterra Mansions Joint Venture Corp. 2014 ONSC 3966 has established that where a company contracts directly with the trades, receives quotes directly from the trades, makes payments directly to the trades, and the trades seek payment from this company, the company is deemed to be a general contractor. A general contractor therefore will have a direct relationship with the trades, beyond the mere supervisory role that a construction manager will have with the trades.
Why is it important to understand the difference between a construction manager and a general contractor?
A construction manager only owes the owner a duty to use reasonable care in the performance of his or her services, and will not be held directly responsible for the work of the trades hired by the owner, or for the performance of the construction project. The owner, alone, will bear the risk of any liability with respect to the work of the trades and the completion of the project.
If the owner wishes to avoid any direct liability for the project, it can do so by hiring a general contractor. In this case, the risk of liability that the owner would bear shifts to the general contractor, who is solely liable for the completion and performance of the project in accordance with its contract, and for any trade negligence. The general contractor can of course go after the trades for their negligence and breach of contract.
A general contractor will have access to lien rights, as of right. A construction manager may not. Some services provided by a construction manager may not be the subject of a lien. In addition, whether an owner of a project contracts directly with the trades, with the assistance of a construction manager, or contracts directly with a general contractor has a big impact on holdback retained by the owner. In a construction managed project, the owner retains separate holdbacks for each contracted trade.
The different liabilities attributed to a construction manager or a general contractor are significant, and thus, make it imperative to clearly define the roles sought in a construction project. A written contract will go a long way to establish whether the company in question is acting as a construction manager or a general contractor. To ensure a company is being employed in the right capacity, it is important to review the contract with a lawyer to confirm the contract correctly defines the role desired.
While the courts consider the actual wording of the contract, they also closely examine the actual roles undertaken by the company at the project site. Therefore, it is also important that the actual responsibilities performed at the construction site further support the role as defined in the contract between the parties. As they say, if it looks like a ducks, walks like a duck and talks like a duck, well guest what? It’s a duck!
This material does not constitute legal advice. Readers are urged to consult their professional advisers prior to acting on the basis of material in this publication.
Please reach out to Catherine at: willson@gsnh.com or call 416-597-6488.