By HMC Lawyers LLP

As the Alberta construction industry continues to expand, contractors are faced with increasingly tighter margins while also seeing greater project complexity. This creates risks for all parties in the contractual chain. The businesses that succeed know how what risks are appropriate, what risks can be passed on, and what risks are simply too much to take on in a contract.

To stay competitive and protected, Alberta contractors should look at their contracts closely for the following four clauses that may be critical to renegotiate so they are not left behind.

1. Indemnity Clauses: Stop Taking on Everyone’s Risk

Many project owners and general contractors try and use overly broad and general indemnity clauses. These clauses ask parties down the contractual to indemnify them for things out of that party’s control – things like the owners or general contractor’s own negligence or uninsured risks.

To ensure you are appropriately protected, make sure the contract limits your responsibility to situations arising from your own negligence, that exclude owner/consultant negligence, and that align with insurance coverage for the project. Insurance policies may not cover you for indemnities you voluntarily assume in a contract – resulting in you paying out of pocket for issues on the job site out of your control.

2. Schedule Obligations & Delay Risk: What Delay Is Really Your Fault?

Like indemnity clauses, general contractors and project owners may try and pass down delay risk to subtrades for issues completely out of their control. Examples of such delays are labour shortages, procurement delays, and weather volatility. It is crucial to be aware of what delays you are responsible for in the contract to make sure they are only ones you have control over.

3. Limiting Your Liability: The Importance of Capping Your Exposure

It is common to see contracts giving contractors uncapped liability. This means there is no limit to what you may owe if something goes wrong, creating significant risk with the rise of construction defect claims and insurers continuing to tighten coverage obligations.

To properly cap your exposure, contractors should look for language that caps their liability to fixed amounts, like their contract price or insurance limits. This gives contractors certainty on what they may owe when things go wrong on the job site.

4. Incorporating Language from Alberta’s Prompt Payment Legislation

Although contractors have likely heard or seen hundreds of blogs, newsletters, and presentations regarding Alberta’s Prompt Payment and Construction Lien Act (PPCLA) contracts still include inappropriate payment timelines, unclear invoicing procedures, and other provisions not in compliances with the PPCLA.

Failure to abide by the PPCLA provisions can lead to significant issues for contractors when disputes arise. It is important to review contracts to see what language is included for proper invoices and notices of non-payment.

5. Design Risk: It Does Not Have to Shift to You

Contractors face significant risk when a contract shifts design responsibility, explicitly or implicitly, onto them. This is especially true where the owner’s consultant remains the “Engineer of Record.” Even limited design involvement, such as preparing shop drawings or incorporating delegated design components, can expose contractors to professional negligence level liability without the protection of professional liability insurance. This can lead to responsibility for structural or performance failures, redesign costs, delays, and downstream claims from owners, consultants, and other trades.

Design risk is often transferred through routine contract clauses. For example, a provision stating that the contractor “shall verify all dimensions, design details, and the adequacy of the design for the intended use” effectively converts the contractor into a secondary design reviewer. This is an obligation that should belong to the consultant.

Similarly, clauses requiring that the contractor “ensure the work is fit for its intended purpose and meets all performance criteria” create an implied design warranty. This means the contractor may be accountable for performance outcomes that depend on the owner’s or engineer’s underlying design. Identifying and revising these clauses before signing is essential to avoiding unintended and uninsured design liability.

Final Thoughts: Do Not Be Afraid to Negotiate

Owners and general contractors are constantly trying to shift risk downward – this does not mean that all risks must be taken on by the party at the bottom of the contractual chain. It is important to know what the contract says about your obligations are, beyond just the scope of work. Contractors do not need to take on risks they are uncomfortable with just because it is in the first draft of the contract.

This blog post highlights only a portion of the risks a contractor should be aware of when reviewing a contract. You may have questions on what the appropriate language should look like, other provisions to look out for, or whether the risks are appropriate for your business. The construction law team at HMC. Lawyers can help you with this.

If you need help drafting a contract from scratch, assistance in negotiating terms, or simply want another set of eyes to review the contract before signing, you can contact HMC Lawyers to discuss your situation at 403-269-7220.