Holding the appropriate licence: a requirement, from bidding to the registration of the legal hypothec notice

Within the context of a public or private contract, holding the appropriate licence issued by the Régie du bâtiment du Québec (RBQ) is paramount for general contractors. Neglecting to obtain or maintain the required licence can result in various consequences for a contractor, including disqualification during the bidding process, penal sanctions, the cancellation of a legal hypothec, contract termination, and the surety’s refusal to indemnify the client under a contractor’s licence security.

i.          Failure to hold an appropriate licence when bidding in a public tender constitutes a significant departure from the principle of equality amongst tenderers

Holding an appropriate construction licence is crucial for the granting of a contract through the public tender process. The Building Act and its regulations prohibit a general contractor from bidding on, carrying out, or subcontracting work for which he does not possess the proper licence[1].

In P.E. Pageau inc. c. Société des établissements de plein air du Québec[2], the Superior Court had to determine whether a client is obligated to specify in tender documents that a specific licence is required to perform the requested work. The Court reasoned that the Building Act is a public order legislation designed to protect the public by ensuring that work is carried out by qualified professionals, in compliance with industry standards. Accordingly, the client does not have to specify the required licences to be held by the general contractor.  The onus falls on the contractors to ensure they hold the necessary licences to perform the work they are bidding on. It is not a contractual obligation, but a statutory requirement. The Court concluded that a contractor who does not have the necessary licence at the bid submission stage cannot enter into a contract with the client. Further, the Court was of the opinion that it is “impossible” to remedy such an irregularity without shifting the balance that should exist between the various tenderers. The contractor’s failure to hold the appropriate licences will result in the client deeming the bid non-compliant and subsequently rejecting it.

ii.          Performing work without a licence or with a restricted licence in the context of a public contract constitutes a penal offence

The contractor who has had a restriction imposed on their licence may not bid on a public contract nor enter into a public contract in the event that it is not subject to a public tender process[3]. Moreover, if the RBQ imposes a restriction on a contractor’s licence while the latter is carrying out work as part of a public contract, the contractor must terminate the contract unless they secure authorization from the RBQ to continue the work[4]. Such an authorization is generally granted in very specific situations.

Failure to comply with the foregoing may result in substantial penalties.

It should be noted that a contractor’s inability to fulfill its contract due to a licence restriction is not a valid defense against a client’s claim for damages to cover the additional costs incurred as a result of having to hire a new contractor.

iii.          Failure to hold the appropriate licence at the time of registration of a legal hypothec notice is grounds for the owner to seek the cancellation of the notice pursuant to section 50 of the Building Act

Contractors are generally well aware that they can encumber the property subject to the work with a legal hypothec in the event that the client refuses, neglects or omits to pay them.

However, the maintenance of a valid licence issued by the RBQ for the work undertaken is a crucial condition for the validity of such a legal hypothec. If the owner has not been informed that the contractor does not possess such a licence, the hypothec, even if otherwise compliant, could be canceled at the owner’s request.[5]

In fact, in the case of Blü Y.M. Électrique inc. et 9376-1104 Québec inc[6]., the Superior Court states that the validity of the legal hypothec in favour of the contractor is contingent upon the contractor holding a valid licence not only at the time of work completion but also at the time of notification and registration of the legal hypothec.

The Court reviews the case law, emphasizing that a contractor who has completed their work but no longer holds a valid or appropriate licence at the time of registering the legal hypothec faces the risk of seeing the hypothec cancelled.

This measure may appear stringent, but the courts have interpreted it as in line with the overarching goal of the Building Act: the protection of the public and ensuring the quality of construction work carried out by contractors.

Consequently, contractors must maintain a valid construction licence throughout the entire contractual process, including when the legal hypothec is registered so as to avoid its cancellation. A contractor intending to cease business operations after completing a final project should be cautious to not have his licence revoked prior to the registration of a legal hypothec.

iv.          Failure to hold an appropriate licence when bidding for a private contract can constitute a penal offence or grounds for the resiliation of the contract.

The contractor’s failure to hold or maintain an appropriate licence may lead to both penal prosecution and contract termination.

The Building Act and its regulations prohibit anyone from, directly or through an intermediary, submitting bids with the aim of carrying out or having construction work done for their benefit without holding a licence or while holding a licence that does not include the appropriate categories or subcategories[7]. Failure to comply can result in severe penalties.

Moreover, the client who is not himself a contractor may request the resiliation of the contract[8]. The client is not required to provide evidence of any specific prejudice, the mere fact that the contractor does not hold the appropriate licence is sufficient. In such cases, there is no basis for an unjust enrichment claim by the contractor.

However, in 9046-5014 Québec inc. c. Triassi[9], the Court highlights that the request to have the contract terminated may be denied if the contractor proves the client knew the contractor was not holding the appropriate licence. If applicable, the burden of proof is on the contractor.

In light of the above, a contractor who carries out work, even exclusively on a private basis, must ensure that he possesses the appropriate licences and that they remain valid throughout the completion of the work he intends to carry out or have performed.

v.          Failure to hold the appropriate licence at the time of notifying the surety of the payment default may sometimes constitute a breach under the licence security.

Obtaining a licence security is a prerequisite for the issuance of certain contractor licences[10].

If a contractor fails to hold and maintain an appropriate licence for the work performed, the surety that issued the licence security may refuse to indemnify a potential claimant.

In the case of Régie du bâtiment du Québec c. Tribunal administratif du travail[11], which was upheld on appeal[12], the Superior Court was tasked with determining whether, in the context of a licence security, the surety had to indemnify the client for poorly executed work when the contractor did not hold an appropriate licence to carry out the work. The Court concluded that the surety is not obligated to compensate the client since the licence security does not extend to cover all of the contractor’s obligations. Instead, such a security only applies to the licence categories and subcategories for which it was issued.

Thus, the licence security does not cover all contractual breaches by a contractor but is rather limited to obligations associated with the licences they hold. It follows that any work undertaken without the appropriate licence may not be covered by the licence security.

In conclusion, regardless of whether a contractor primarily operates within the public or private contract framework, maintaining the appropriate licence is critical for numerous reasons. It ensures compliance with applicable legislation and prevents adverse outcomes.

[1] Building Act, CQLR c B-1.1, section 46; Regulation respecting the professional qualification of contractors and owner-builders, CQLR c B-1.1, r 9, sections 5 and 7.
[2] P.E. Pageau inc. c. Société des établissements de plein air du Québec, 2019 QCCS 3938.
[3] Building Act, CQLR c B-1.1, section 65.2.
[4] Building Act, CQLR c B-1.1, section 65.2.1.
[5] Building Act, CQLR c B-1.1, section 50.
[6] Blü Y.M. Électrique inc. et 9376-1104 Québec inc., 2021 QCCS 2594.
[7] Building Act, CQLR c B-1.1, section 46; Regulation respecting the professional qualification of contractors and owner-builders, CQLR c B-1.1, r 9, sections 5 and 7.
[8] Building Act, CQLR c B-1.1, section 50.
[9] 9046-5014 Québec Inc. c. Triassi, 2002 CanLII 4285 (QC CQ).
[10] Building Act, CQLR c B-1.1, article 84.
[11] Régie du bâtiment du Québec c. Tribunal administratif du travail, 2021 QCCS 5792.
[12] Régie du bâtiment du Québec c. Association des professionnels de la construction et de l’habitation du Québec inc., 2023 QCCA 296