How is interest calculated under Article 5.2.1 of CCDC 2?

Article 5.2.1 of CCDC 2 (and similar provisions in other CCDC contracts) standardizes the interest owed on overdue accounts. The intent of Article 5.2.1 is to produce a comparable rate to that which a party would be subject to in order to finance such owed amounts. Two percent above the prime rate charged by commercial lending institutions is proposed as the standard. To not show bias to any bank, the name of the institution is to be specified by the parties. However, the named institution should be a commercial bank that the parties could secure funding from, and not other organizations that may prescribe interest rates like the Bank of Canada. The rate of interest to apply is stated as an annual rate to avoid the application of Section 4 of the Federal Interest Act, which could otherwise cap the rate.

Article 5.3.2 specifies that the interest prescribed above should apply to settlement amounts of any disputed claim from the date such amount would have been originally owed if not disputed. When interest is included in the final settlement of a dispute, it is recommended that the terms of settlement clearly indicate that the settlement amount includes all interest so that paragraph 5.3.2 is satisfied.