COCA Urges Change to Federal Prompt Payment Act

May 22, 2019

As reported in the Council of Ontario Construction Associations’ May newsletter, the organization has advised the federal government that a proposed prompt payment amendment to the Construction Act is flawed. The amendment involves “pay when paid” clauses, and appears in Bill C97, the federal government’s budget bill.

In a submission to the Standing Committee on Finance, which is reviewing C97, COCA’s Prompt Payment Task Force Chair, Ted Dreyer wrote that “COCA supports the pay when paid principle. The problem with the contractual pay when paid clauses that are now commonplace is that they tend to delay the resolution of the disputes that disrupt the flow of funds. Since a contractor with a pay when paid clause in its subcontract has no obligation to pay its subcontractors, the contractor is not particularly motivated to resolve its underlying dispute with the owner that is delaying payment. Since the subcontractor does not have privity of contract with the owner, it is powerless to bring the dispute between the contractor and owner that is delaying payment to a head. Contractual pay when paid clauses are one of the main reasons for the industry wide trend of slow payment.

Dreyer’s submission notes that Ontario’s Construction Act takes a different approach, combining the pay when paid principle with a mechanism to ensure that disputes that disrupt the flow of funds are promptly resolved: 

• Section 6.5(5)(a)(iii) requires a general contractor serving a notice of non-payment upon a subcontractor to give an undertaking to refer its dispute with the owner to adjudication within 21 days
• Subsection 6.6(6)(a)(iii) imposes the same obligation on subcontractors who deliver notices of non-payment to their sub-subcontractors.

“The flaw in the proposed federal amendment,” says the COCA submission, “is that it adopts the pay when paid principle without making it conditional upon the timely resolution of disputes. There is no equivalent to subsections 6.5(5)(a)(iii) and 6.6(6)(a)(iii) in the proposed Act. A general contractor who serves a notice of non-payment to its subcontractor has no obligation to refer its dispute with the federal government to adjudication… A general contractor served with a notice of adjudication by a subcontractor will simply point to subsection 10(3) and say that it has no obligation to pay the subcontractor because it was not paid by the government.”

The submission agrees that prompt payment legislation is needed to make sure that contractors and subcontractors are paid on time for their work, but “unless the proposed act is amended, it will make the problem that the government is trying to solve even worse.”

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