Ontario Introduces Prompt Payment Legislation

June 9, 2017

Ontario has introducing legislation that would, if passed, introduce a prompt payment system, modernize construction lien and holdback rules, and create a new process to speed up dispute resolution.

If passed, the proposed legislative and regulatory changes under the Construction Lien Act would come into effect in 2018. These changes come as the province proceeds through what it claims is its largest ever infrastructure investment in hospitals, schools, public transit, roads and bridges — more than $190 billion over 13 years, starting in 2014-15. The changes would bring Ontario’s construction laws up to date to reflect current construction industry practices and support the thousands of workers and businesses in this sector.

The Construction Lien Act regulates the way payments are made in the construction industry, and provides reasonable certainty that those who have contributed services or materials to the improvement of real property will be paid for the contribution they made. Under the proposed legislation, the act would be amended to establish a prompt payment system with clear payment timelines for all parties involved in a construction project. Disputes that slow down payment could be addressed through a new adjudicative process outside of court.

Specific features of the changes appear below.

Creating a prompt payment system

Under the proposed changes, the owner and general contractor on a project would be able to agree to a deadline to submit an invoice. If they do not agree, they would be required to submit invoices on a monthly basis. Once they receive an invoice, owners would be required to pay general contractors within 28 days. After they receive payment, general contractors would have to pay subcontractors within seven days. Subcontractors would be required to pay other subcontractors within seven days of receiving payment, and so on.

Parties would be free to agree to a timeline for the submission of invoices, before triggering the prompt payment timelines. Where there is a dispute about the amount owed or the quality of the work, owners would be permitted to deliver a notice of non-payment within 14 days of receiving the invoice.

Successive payers would be permitted to deliver a notice of non-payment within seven days. Any undisputed amounts must be paid.

Contractors and subcontractors would receive mandatory interest on late payments. They would also be able to suspend work on a project if the matter is heard by an adjudicator and the payer does not comply with the decision.

Updating construction lien and holdback rules

Among the proposed changes to modernize the construction lien and holdback rules are the following: • extending timelines for contractors and subcontractors to file liens and start court actions from 90 days to 150 days to allow for more time to resolve disputes outside of court

• requiring holdbacks to be paid once the timeline to file liens has passed. This would give contractors and subcontractors greater certainty about when the holdback will be paid, allowing them to plan and accept contracts for new work

• requiring contractors and subcontractors to follow specific bookkeeping requirements to protect subcontractors in the event of bankruptcy

• requiring surety bonding on public sector projects above a certain amount to protect subcontractors and workers if the general contractor files for bankruptcy

• providing for the referral of construction lien claims under $25,000 to the small claims court

Speeding up dispute resolution

The proposed changes include a new interim adjudication system to prevent payment disputes from delaying work on construction projects, speed up the payment process and reduce time and money spent on litigation.

Adjudication would

• provide an interim binding decision in approximately six weeks. Adjudication would

• give parties an alternative to court or provide an interim, binding solution while matters are being heard in court

Adjudication can be used to resolve payment disputes that could result in project delay, including disputes about the valuation of work, payments and set-offs against amounts due under a contract. The adjudications would be informal and inquisitorial.

Parties would be free to establish a process by contract or use the default process, which would be available in regulations. If, after adjudication, the party owing money refuses to comply with the decision, the party eligible for an award would be entitled to suspend further work under the contract.

Adjudicator’s decisions could not be appealed, but the decision could be challenged on the grounds of adjudicator bias or a decision on a matter other than the matter referred. If the parties are satisfied with the adjudicator’s decision, they may agree to treat the decision as final. Whether or not the person owing money complies with the adjudication, the parties may continue to pursue ordinary legal remedies to address the dispute.

Time limits for preserving a lien would be extended to encourage parties to adjudicate first. The adjudicators would be experts who have had extensive experience in the construction industry and who have experience or training in dispute resolution.

Federal prompt payment legislation also in the works

Canada’s Senate recently passed Bill S-224, the Canada Prompt Payment Act, regulating payments on federal construction contracts. The bill now goes to the House of Commons.

Find out more: http://www.electricalindustry.ca/changing-scenes/3090-senate-approves-prompt-payment-act.