Ontario’s new Construction Act: Part II
By Robert Kennaley
Part Two: Prompt payment and adjudication
By Robert Kennaley
May 30, 2018 – In our last article, we introduced the prompt payment provisions of the new Construction Act, which 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. In this article, we will continue our discussion in that regard.
To trigger the 28-day requirement to pay, a proper invoice must include certain predictable information: the date of the invoice, the contractor’s name and address, the amount payable, the terms of payment and where payment is to be sent. In addition, the owner and contractor can agree to include additional requirements. These might include statutory declarations, evidence of insurance, schedules, etc. Contractors should take care to review proposed contract terms, as any requirements that are difficult to meet may delay the flow of funds.
Of note, the Act requires that a proper invoice “be given to an owner on a monthly basis, unless the contract provides otherwise.” This is a change from the “common law,” which only calls for interim payments if the contract or subcontract calls for them. Because the Act will continue to apply to all improvements (regardless of their scope or value), every roofer, landscaper and cabinet installer (for example) is entitled to monthly payments, unless the contract says otherwise. In addition, the definitions of contractor and subcontractor continue to include consultants, subconsultants and suppliers. To be clear, prompt payment and adjudication apply to these participants.
As noted above, the owner has to pay within 28 days of the receipt of the proper invoice unless, within 14 days, it has provided a ‘notice of non-payment’. The notice must be given in the form and manner “prescribed” (or mandated), by the Act’s regulations. These have yet to be determined.
Regardless of whether or not he is paid, the contractor must pay its subcontractors and suppliers within seven days, unless the contractor gives a notice of non-payment (again, in the prescribed form and manner) to the subcontractors or suppliers to dispute that payment. The pattern then repeats itself down the construction pyramid: everyone has seven days to pay the ones beneath them unless a notice of non-payment is given to dispute that obligation. To allow subcontractors to know when the proper invoice was given to the owner, the contractor will have to provide that information “as soon as possible” upon the request of the subcontractor.
If an owner gives a notice of non-payment in relation to only part of an invoice, it will have to pay the rest within the 28 days. The contractor who receives the part payment must then pay its subcontractors within seven days unless, again, it gives a notice of non-payment. If the contractor has more than one subcontractor, the part payment is distributed on a pro-rata basis unless the owner’s basis for disputing the contractor’s invoice can be attributed to certain of the subcontractors, in which case the funds will be withheld from those subcontractors, again on a pro-rata basis.
Where a contractor or subcontractor has not been paid, it can give a notice of non-payment to those below to explain the non-payment on that basis. It will, however, have to undertake to bring the person above them to adjudication within 21 days.
If a payor misses a deadline to pay and does not give a notice of non-payment, the Act provides that the payer will have to pay interest, either at “Courts of Justice Act” rates (which are paltry) or the rate set out in the applicable contract or subcontract. In the next issue, we will deal with when and how parties can take construction disputes to ‘adjudication’ to resolve disputes in as early as 46 days.
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.