Ontario’s new Construction Act
By Robert Kennaley
An introduction to prompt payment and adjudication.
By Robert Kennaley
April 4, 2018 – On Dec. 12, 2017, Ontario’s Construction Lien Act Amendment Act, 2017 was passed into law. Its substantive changes will come into force on a date to be determined (or “proclaimed”) later this year. Among other things, these will change the name of the Construction Lien Act to the Construction Act.
Among other things, the changes include prompt payment requirements and adjudication procedures, new lien procedures, longer lien timeframes and enhanced trust obligations. In this column, and in columns to come, we will break down and summarize the changes, as well as the impact they will have on all participants in the construction industry in Ontario.
We will begin with a discussion of the problem, which the prompt payment provisions seek to solve. Subcontractors and contractors have long complained about payments being withheld for either no reason at all or for reasons that are groundless or unsupportable.
Often, owners or contractors refuse to release a final progress draw (or the construction lien holdback) because items remain on a deficiency list. This can create immense pressure when unpaid contractors or subcontractors believe the deficiencies can be corrected for a fraction of what has been withheld. Similar disputes arise over unapproved changes in the work or where owners or contractors withhold funds on the basis of alleged delay.
Often, of course, the refusals to release progress draws, release holdback or approve changes are done in good faith. At other times, the failures appear to be no more than bare, unsupportable allegations. Regardless, the disputes are all too often not resolved in a timely fashion. In the meantime, if the unpaid contractors and subcontractors have paid their employees, subcontractors and suppliers, but are awaiting payments properly due, they are essentially financing the improvement, often with money they don’t have and on punishing financial terms. If they have been unable to pay their subcontractors and suppliers, they are subject to work stoppages, liens and litigation.
Our current system has been unable to address the competing claims in a timely, efficient or proportional way. All too often, the various claims get lumped together in protracted legal proceedings. In the meantime, the financial pressures often do devastating harm to innocent parties and projects often grind to a halt under the pressure. It is these problems that the prompt payment and adjudication provisions of the new Construction Act seek to address.
The prompt payment provisions of the new Construction Act provide that once a “proper invoice” is given to the owner, the owner must either give a “notice of non-payment” to dispute the invoice within 14 days or pay the invoice within 28 days.
Thereafter, each payer in the construction pyramid will also have to either pay, or give notice of non-payment, to those immediately beneath them. Where an unpaid party receives a notice that it is not going to be paid, it can (and sometimes must) send a dispute over the unpaid amount to “adjudication”.
The legislation is designed to ensure that disputes will be resolved, at least on an interim basis, no more than 46 days after a notice of adjudication has been given. This is an extremely short period of time, especially in comparison to the years it can take to resolve construction disputes in the usual course of litigation in the courts.
The availability of adjudication is, however, a double edged sword: while it will assist all participants in construction in Ontario to resolve disputes and/or get paid in a timely fashion, those changes will also force those participants to be ready to present their in support of their positions to an adjudicator in a very timely fashion. Indeed, a failure to be prepared for adjudication in the event disputes arise can have a very significant impact. We will explore the prompt payment and adjudication provisions further in our next article.
Robert Kennaley has a background in construction and is now the principal of Kennaley Construction Law, a law firm with offices in Simcoe, Toronto and Barrie, Ont. He speaks and writes regularly on construction law issues and can be reached for comment at firstname.lastname@example.org. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.