Applications for Payment and Holdback in Canada (CCDC 2)

Every month on a construction project, the contractor sends in a bill. The architect reviews it, decides how much to certify, and tells the owner what to pay. Some of that money is held back on purpose — and it does not come back until a very specific event happens later in the project.

This is the payment cycle under CCDC 2. The ExAC tests it from multiple angles: who prepares what, who signs what, what gets withheld, and what triggers the release. This article explains the full process in plain language so you can answer those questions fast on exam day.

Step one: the application for payment

The contractor sends an application for payment — sometimes called a progress draw or progress application — once a month. This is the contractor's invoice. It says: "here is how much work we have done, please pay us this amount."

Under CCDC 2, the contractor sends this to both the owner and the prime consultant at the same time, on the agreed day each month. It must include:

• The invoice — showing dollar amounts that match the schedule of values
• A WSIB certificate — proof the contractor is in good standing with the Workplace Safety and Insurance Board
• A statutory declaration (CCDC 9A) — a sworn statement that all money received from the owner has been passed on to subtrades and suppliers. This must be signed by a notary public and bear an original CCDC copyright seal. It is not required with the very first application for payment.

A good practice is for the contractor to share a draft of the progress draw with the consultant before the formal submission. This lets both parties sort out disagreements about how complete the work is before the clock starts. With Ontario's prompt payment legislation, the contractor can be paid even if the consultant and contractor disagree — the owner issues a notice of non-payment for any disputed amount only.

The schedule of values

The application for payment is organized around the schedule of values — also called the contract breakdown. This is an itemized list of all the work on the project, each item assigned a dollar value. It is how the consultant evaluates how much work has been done each month.

The schedule of values should be reviewed and accepted before the first application for payment arrives. A few things to watch for:

• Front-end loading — the contractor artificially inflates the value of early work items so they get paid more money earlier in the project. This is a red flag.
• Not enough detail — a line item that just says "mechanical: $200,000" is hard to evaluate. Push for a breakdown that lets you actually assess progress.
• No line item for closeout documents — assign value to operation manuals, as-built drawings, and warranties up front for each major discipline. Otherwise the contractor has little incentive to deliver them at the end of the project.

Step two: the certificate for payment

After reviewing the application, the consultant issues a Certificate for Payment (CfP). This is the consultant's certified statement of how much the owner is required to pay the contractor for that payment period.

The amount on the certificate does not have to match the amount on the application. The consultant evaluates what they have actually seen on site and certifies accordingly. If the amounts differ, the consultant must explain why — and the owner may need to issue a notice of non-payment to the contractor for the disputed amount.

The body of the certificate works through a simple calculation:

1. Start with the original contract price
2. Add any signed change orders and the undisputed value of any change directives
3. This gives the adjusted contract amount
4. Multiply by the percentage of work completed to date = the gross amount earned
5. Subtract statutory holdback (10%)
6. Subtract all previous payments
7. The result is what is owed this month (plus HST in Ontario)

Be careful about both extremes. Over-certifying means the owner has paid out more than the work is worth — if the contractor then defaults, that money is gone. Under-certifying chokes the contractor's cash flow, which can slow the project or push the contractor into financial trouble. Either way, the consultant is exposed to claims from both sides.

What is statutory holdback?

Every time the owner pays the contractor, they keep 10% back. That 10% is called the statutory holdback. It comes from the Construction Act (Ontario), not from CCDC 2. The holdback protects subtrades and suppliers — if the contractor fails to pay them, they can make a lien claim against the holdback funds.

The owner holds 10% back from the contractor. The contractor, in turn, holds the equivalent back from each subcontractor. The subcontractors hold it back from their sub-subtrades. The holdback flows through every level of the payment chain.

The holdback must be kept in a separate trust account. The owner cannot use it for anything else while it is being retained. It is not the owner's money to spend — it belongs to the people who did the work, protected until the lien period closes.

If the owner fails to retain the full 10%, they are personally liable to lien claimants for the shortfall. In the worst case, this means paying twice — once to the contractor, and again to the subtrades who were not paid. The duty to retain holdback is strict.

When does holdback get released?

Holdback is not released all at once. It comes in stages tied to specific project milestones.

Basic holdback — released after substantial performance

The largest portion is the basic holdback. It covers all the work done up to the point of substantial performance. Here is how it gets released:

1. The contractor applies for a determination of substantial performance.
2. Under CCDC 2, the payment certifier (usually the consultant) has 20 days to respond.
3. If approved, a Certificate of Substantial Performance is published in a construction trade newspaper. In Ontario, this is required by the Construction Act and starts the lien period.
4. The lien period runs for 60 days after publication for general contractors. Subcontractors and sub-subtrades have 45 days from the last day they supplied work or materials.
5. After the lien period, if no liens have been registered (or all liens have been vacated or satisfied), the owner can release the basic holdback to the contractor.

Finishing holdback — released after completion

After substantial performance, the remaining work (the final few percent of the job) creates a separate pot of holdback money called the finishing holdback. This is released after the work is fully complete and another lien period — 60 days from the publication of a Certificate of Completion — has expired without liens.

How is substantial performance calculated?

Knowing that substantial performance exists is not enough. You need to know the exact formula used to calculate it, because the ExAC will ask you to apply it.

Under the Construction Act, a project reaches substantial performance when two things are both true:

1. The project is suitable for its intended use, and
2. The total value of incomplete or deficient work is at or below the statutory threshold.

The threshold is calculated using a sliding scale tied to the contract price:

• 3% of the first $1,000,000 of contract price
• 2% of the second $1,000,000 of contract price
• 1% of the balance of the contract price

Here is a worked example. The contract price is $3,000,000:

• 3% × $1,000,000 = $30,000
• 2% × $1,000,000 = $20,000
• 1% × $1,000,000 = $10,000
• Total threshold = $60,000

If the remaining work and deficiencies on a $3,000,000 contract cost less than $60,000 to complete, and the building is usable, substantial performance has been reached.

On a larger contract — say, $5,000,000 — the threshold is $30,000 + $20,000 + $30,000 = $80,000. The bigger the project, the larger the dollar amount of work that can remain, but the smaller it is as a percentage of the overall price.

Substantial performance vs substantial completion — they are not the same

This is one of the most common mix-ups on the ExAC. These two terms sound similar but they come from different laws and mean completely different things.

Trust rights under the Construction Act

The Construction Act gives everyone on the project two separate sets of rights: lien rights and trust rights. Most people know about liens. Fewer know about trusts — and the trust provisions are arguably more powerful.

Here is how the trust obligations work:

• Owner's trust obligations. Once the owner receives financing for a project (a construction loan, for example), those funds are held in trust for the people who will do the work. Once a certificate for payment is issued, the money certified is held in trust for the contractor. Once substantial performance is reached, the money owing to the contractor at that point is held in trust.
• Contractor's trust. Any money the contractor receives from the owner is held in trust for subcontractors. The contractor cannot use that money for any other purpose — including paying their own overhead — until the subtrades are paid.
• Subcontractor's trust. The same rule applies one level down. A subcontractor who receives money from the contractor holds it in trust for their own sub-subcontractors and suppliers.

The key difference between trusts and liens: breach of trust is strict liability. You do not need to prove that someone intended to misuse the money. If a contractor pays their own bills before paying subtrades, they have breached their trust obligation — full stop. This matters for the architect because project financing and payment certification are both caught by the trust provisions, and any interference with those trusts creates exposure.

Prompt payment

As of October 1, 2019, Ontario's prompt payment rules apply to all construction contracts. The rules set hard deadlines at every level of the payment chain:

If the owner fails to pay and has not issued a Notice of Non-Payment, the contractor can — after giving 7 days' written notice — suspend work. If a Notice of Non-Payment is issued, the dispute can be referred to adjudication.

Adjudication is handled by the Ontario Dispute Adjudication for Construction Contracts (ODACC). An adjudicator's determination is delivered within 30 days and is binding on both parties until the end of the project — even if one party disagrees. It is a fast-track process designed to keep money flowing while disputes are sorted out. Either party can appeal through the courts afterward.

Change orders and unsigned changes — a payment trap

Only include signed change orders in the certified amount. A change order that has not been signed by both the owner and the contractor is not yet part of the contract — it cannot be included in a certificate for payment. The same goes for proposed changes: do not certify against their value until they are settled.

If a contractor proceeds with work under an unsigned change order or a proposed change, they do so at their own risk. The contract has not officially changed. Any such work can be treated as deficient.

Materials not yet on site

Under CCDC 2, payment is normally triggered when materials are delivered to the site. Many owners modify this with a supplementary condition. The contract should be clear on when payment for materials is allowed and who is responsible for storage, security, and insurance until the materials are incorporated into the building.

The Certificate for Payment represents the minimum the owner is required to pay — not the maximum. The owner can choose to pay more, but they do not need the consultant's permission to do so.

Common ExAC exam traps

• Certifying without site visits. If the consultant has not been on site, they cannot certify. A consultant who skips site reviews cannot suddenly certify payment or substantial performance later.
• Confusing substantial performance with substantial completion. Different laws. Different triggers. Different consequences. Do not mix them up.
• Not knowing the 3-2-1 formula. If asked whether a project has reached substantial performance, you need to calculate the threshold: 3% of first $1M + 2% of second $1M + 1% of the balance. Compare that number to the remaining work. Many candidates know the concept but cannot apply the formula.
• Thinking holdback is the consultant's decision. Statutory holdback is the law. It is 10% under the Construction Act — not something the consultant decides on a project-by-project basis.
• Forgetting the 20-day clock. Under CCDC 2, the payment certifier has 20 days to respond to an application for determination of substantial performance.
• Confusing preserve and perfect. Registering a lien (preservation) and commencing a court action (perfection) are two different steps. Preservation must happen within 60 days (contractors) or 45 days (subcontractors). Perfection must happen within 150 days of preservation. Preserving without perfecting is not enough — the lien will expire.
• Forgetting about trust rights. The Construction Act gives claimants both lien rights and trust rights. Trust rights attach to money, not land — and breach of trust is strict liability. The money received by each party is held in trust for the party below them in the payment chain.
• Including unsigned change orders. Only signed change orders and undisputed change directive amounts belong in the certified total.
• Confusing a stat dec with a WSIB certificate. They are different documents, and both are typically required with each application (except the first).
• Missing the prompt payment clock. Under Ontario's prompt payment rules, the owner has 28 days from the proper invoice to pay or issue a Notice of Non-Payment. The contractor then has 7 days to pay subcontractors. These timelines are set by statute — not negotiable in the contract.

Frequently asked questions