Spring 2026 - May 14 - Flipbook - Page 15
each type of Contract B as it relates to the
speci昀椀c needs of a project.
The transition from the
bidding Contract A to the
construction Contract B
marks the beginning of a new
set of legal obligations, risks,
and commercially strategic
considerations that are not
only expressly set out in the
written Contract B but are also
incorporated into Contract B
by operation of law.
Implied Contractual Duty of Good Faith
and Duty of Honest Performance
Under Canadian law, once a contract
has been entered into, the parties must
perform their contractual obligations in
good faith and honestly. For example,
where a contractual term requires a party
to exercise discretion, that discretion
must be exercised in good faith, in a
commercially reasonable manner, and not
capriciously or arbitrarily.
Real world examples of general contractors
breaching their duty of good faith and
honest performance are too numerous to
expand upon in this article. However, the
following is a common example that has
been addressed by the courts:
Where a party purports to exercise a
right of termination under Contract B,
that right must be exercised in good faith,
honestly, and transparently, and not in a
manner that misleads the innocent party
into continued performance of Contract B
at that party’s own expense and risk.
Where termination is not exercised in
good faith or honestly, the innocent party
may be awarded significantly higher
damages than would otherwise have
been available had the termination been
exercised properly in accordance with
Contract B.
The parties to Contract B cannot exclude
liability for breach of the duty of good
faith or the duty of honest performance by
contract.
CO N N E C T W I T H US
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Strict Compliance with Contract B Notice
Requirements and Timing of Procedural
Obligations
Typically, Contract B forms—whether
standard CCDC forms or bespoke
construction contracts—contain strict
written notice provisions, including those
relating to scope changes, project delays,
noti昀椀cations of breach, and termination
of the contract. In most cases, these
written notice requirements are not merely
procedural but constitute conditions
precedent to a general contractor’s
entitlement to the relief sought, including
monetary compensation and/or extensions
of time.
Furthermore, general contractors
must be aware that under the most
recent provisions of the Construction
Act establishing prompt payment and
adjudication regimes, strict compliance
with written notice requirements and
milestone deadlines is critically important.
Failure to comply may result in a general
contractor being unable to initiate or
defend an adjudication.
Practical Implications
The principles outlined in this article have
direct and signi昀椀cant implications for the
performance of Contract B as construction
proceeds. They arise in everyday
scenarios such as the certi昀椀cation of
payment applications, approval or
rejection of change orders, exercise of
termination rights, assessment of delays
and extensions of time, interpretation of
performance obligations, and operation
of the prompt payment and adjudication
regimes under the Construction Act.
General contractors must therefore
ensure that their conduct—including
the conduct of their on site personnel—
aligns with their contractual and legal
obligations, both express and implied,
under Contract B. Performance must be
carried out honestly, in good faith, and
transparently. Failure to do so may expose
a general contractor to damages for breach
of Contract B, including breach of the duty
of good faith and honest performance, as
well as claims under performance bonds
and, in certain circumstances, labour and
material payment bonds.
In today’s complex construction
environment, success is not just about
winning the bid—it is also about effectively
managing the contractual and legal
realities of Contract B through to project
close out.
SPRING 2026 • the generals 15
