Anonymised, illustrative composite. A British Columbia owner, frustrated by a GC’s slow billing cycle, paid two subtrades directly to keep a project moving. The GC objected — and won the argument, but only because of exactly which pot of money the owner had drawn from.
At a glance
The GC’s billing cycle had slipped twice in a row, and two subtrades — electrical and mechanical — were owed progress payments the owner considered overdue enough to threaten the schedule. Rather than wait for the GC to catch up, the owner paid both subtrades directly out of project funds and told the GC afterward, treating it as a practical fix rather than something that needed sign-off.
The GC objected immediately, and not on a vague fairness argument. The two payments, it turned out, had come out of the project’s statutory holdback account — the account the Builders Lien Act requires the owner to establish for the contract and administer jointly with the GC, not a general project operating account the owner could draw on unilaterally.
Under s.5(1), an owner must establish a holdback account at a savings institution for each contract, pay the statutory 10% holdback into it, and administer that account together with the contractor from whom the holdback was retained. Under s.5(2)(c), money in that account “must not be paid out of the account without the agreement of all the persons who administer the account.” The GC was one of those persons, and it had not agreed to either payment.
The remedy for exactly this situation is also in the Act: under s.5(7), a failure by the owner to pay into the account, or by extension to respect how it is administered, “constitutes an act of default under the contract,” and the contractor, on ten days’ notice, may suspend operations for as long as the default continues.
The owner’s position — that it was simply paying real debts owed to real subtrades for real completed work — was true and beside the point. Section 5(2)(c) does not ask whether the payment was a good idea or whether the underlying debt was legitimate. It asks whether every administering party agreed before the money left the account, and here one of them plainly had not.
$64,000 paid directly to the two subtrades — $27,000 to the electrical sub, $37,000 to the mechanical sub. $210,000 sitting in the holdback account at the time of the payments, so the two draws represented roughly 30% of the account’s balance. Ten days’ notice given by the GC under s.5(7) before it would have been entitled to suspend work — a real, scheduled consequence the owner had to weigh against simply restoring the account and agreeing on a joint sign-off process going forward.
The account does eventually empty on its own schedule: under s.8 of the Builders Lien Act, once a certificate of completion is issued for a contract or subcontract, the holdback period for the money tied to it expires 55 days later, at which point it can be released without triggering the same joint-agreement fight — a fact that would have let the owner simply wait, on a project where waiting was an option.
The bind is which account the money came from. Had the owner paid the two subtrades from uncommitted project funds that had not yet been allocated to the s.5 holdback account, the GC’s objection would have had no statutory teeth — that would be an ordinary contract-privity question about who is entitled to instruct payment, not a breach of s.5(2)(c). Because the payments came out of the established, jointly-administered account, the objection landed on a specific provision the owner had no discretion to override alone, no matter how legitimate the underlying subtrade debts were.
The owner restored the account to its required balance and agreed to a joint sign-off procedure for any future release, and the GC did not need to exercise its suspension right. The two subtrades kept the money they had already received — the dispute was about process between the owner and the GC, not about clawing payment back from the subs. The GC also asked, and the owner agreed, to put the account’s monthly reconciliation in writing to both parties going forward, so a similar draw could not happen again without being visible the same week it occurred rather than after the fact.
For how a holdback account’s statutory life runs on the other end, see how a statutory holdback is calculated and released, and for the trust obligations that travel with money received under a BC construction contract, see construction trust fund obligations.
For how a firm keeps subtrade payment status visible day to day, see how AI helps track subcontractor status and payment.
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