The correct use of Statutory Declarations (often called a Stat. Dec.) is probably one of the best ways to decrease your risk of liens on a construction project. However, I’ve recently come to realize just how little statutory declarations are appreciated, and that they are either not used at all or commonly misused. Here is a brief explanation of their use and their importance.
In general, a statutory declaration is a written statement that is signed in front of an authorised witness. An authorized witness may be a commissioner for oaths, a notary public, or a lawyer.
The construction industry uses these documents to confirm that all money previously paid to a contractor was used to pay out all money that was owed under that payment, including subcontractors, suppliers, employees, and taxes.
Because signing a false Statutory Declaration is considered fraud and punishable under the criminal code of Canada (subject to jail time), the declarant must be diligent in ensuring that all payables under a contract are accurately tracked and that any disputed invoices are clearly communicated to the other party. In addition, the Contractor should be diligent in ensuring that no payments (other than the first) are released to lower-tier Subcontractors without receiving Statutory Declarations from each of them confirming that their lower tier sub-subcontractors and suppliers have been paid out with the previous payment the contractor made to them.
Why are Statutory Declarations required for second and subsequent payments, and not the first?
Typically, owners and contractors only pay their lower tier contractors after they have been paid for that associated work. It is not until AFTER they receive that first payment that they can pay out all lower tier liabilities. The purpose of the Statutory Declaration for the second and subsequent payments are to confirm that the Contractor has used its previous payment to pay out all liabilities related to that payment.
What if my client is requesting a Statutory Declaration with the first invoice?
Because the standard forms (CCDC9A for Contractors and CCDC9B for Subcontractors) are only for second and subsequent invoices and for the release of holdback, these are the only times these are required. However, if a different format is being used, it may have additional language that they require you to sign off on. If you don’t understand exactly what you are signing, consult a lawyer.
What if I am submitting my second invoice, but have not yet received my first payment, and my client is requesting a Statutory Declaration with my invoice?
Because there is usually an overlap between submitting your second or subsequent progress claims, and receiving your first or previous progress payment, Statutory Declarations required prior to payment, which is usually greater than 30 days after you submit your invoice. By that time, you should have received your first progress payment and paid out all of your subcontractors and suppliers you owed under that payment.
If your client is insisting, you can still complete and submit a Statutory Declaration with the invoice, just make sure you clearly identify that you have not yet received payment for that previous invoice. If you have not yet received one payment, complete the space indicated with a “NIL.”
1) Keep accurate records of your payables PER PROJECT. Have a system where you enter them into your accounting system upon receipt, can identify due dates and invoices being disputed. A quick report will allow you to confidently make sure you are good to sign a statutory declaration.
2) Don’t pay your Contractor until all of the work has been certified by the consultant. For Contractors, don’t pay your Subcontractors until you have received payment from the Owner and ensure that exact value for each Subcontractor was certified by the Consultant.
3) Take your builders’ lien holdback from all lower tier Contractors.
4) Make sure you get Statutory Declarations from all lower tier Contractors.
5) If the Prime Contract allows for progressive release of holdback to subcontractors, ensure Certificates of Substantial Performance are posted on the job site and those dates are tracked accordingly. Do not release the holdback prior to the expiration of the 45-day lien period. Do not release the holdback until you have received that corresponding holdback payment from the owner.
6) The industry standard format for Statutory Declarations are the CCDC9A for Contractors and CCDC9B for Subcontractors, which can be downloaded from this website: http://www.ccdc.org. These must have a copywrite seal applied, which are available at your local construction association (and I like to keep a few on hand for use when my clients need them). If you are required to complete a form other than these ones, make sure you understand EXACTLY what you are signing, and consult a lawyer if you don’t.