By Matthew Newman – Surety Practice Leader, Purves Redmond Limited and Adrian Visheau – Associate, Koskie Minsky
Ontario’s new Construction Act addresses the unfairness of the Construction Lien Act. Previously, non-payment of contractors was a routine occurrence, and disputes could take years to resolve. The new legislation has ushered in a prompt payment framework to ensure that contractors, subcontractors and suppliers get paid in a timely fashion, as well as a new dispute adjudication process.
There are three ways to use this new legislation to make sure you get paid:
- The new prompt payment and adjudication regime
- Payment Bond claims
- The traditional construction lien
Although these are all separate forms of recourse, opting for one method doesn’t necessarily mean you can’t also use the others. When confronted with a non-payment scenario, we recommend speaking with a qualified surety or legal expert to understand which remedies may be available to you.
Prompt Payment and Adjudication, A New Regime
One of the most significant aspects of the new Construction Act is the introduction of the prompt payment regime. Under this new regime, the owner of a project must make payment to the contractor within 28 days of the contractor submitting a Proper Invoice. In turn, the contractor must pay any subcontractors within seven days of receiving payment from the owner, to the extent the subcontractor’s work was included in the contractor’s invoice. What happens if the owner doesn’t want to pay? Under the new Construction Act, an owner disputing their payment obligation to the contractor must now deliver a Notice of Non-Payment within 14 days of receiving the Proper Invoice from the contractor. In turn, the contractor must deliver their own Notices of Non-Payment to any affected subcontractors.
If a contractor is not paid by the owner, whether or not proper notice was provided, they can then start an adjudication process.
What is adjudication? Similar to a private arbitration, adjudication is the new standard dispute resolution process in Ontario. It’s designed to have disputes on a project heard and determined in a short period of time by qualified experts. Although the parties can agree to have just about any dispute resolved by way of adjudication, the system is really designed to serve as the “teeth” of the prompt-payment regime, ensuring that disputes over payment are resolved quickly so that money continues to flow and the project stays on track.
How does the adjudication process work? When a party decides to initiate adjudication, they must give formal notice to the other party. Then, the parties have four days to agree on an adjudicator, who must be selected from a pool of individuals qualified by a government-appointed body known as the Authorized Nominating Authority. If the parties cannot agree on an adjudicator, the Authorized Nominating Authority will appoint one within seven days of the notice of adjudication.
Once the adjudicator is appointed, the initiating party must deliver its submissions and supporting materials within five days. The adjudicator will then mandate the deadline for delivery of the responding party’s materials. However, once the initiating party submits its materials, the adjudicator has only 30 days to issue a decision (unless the parties agree to a brief extension).
The decision of an adjudicator is not necessarily the final word on a dispute, as the parties still have the right to litigate the subject matter of the adjudication before the Courts. However, unless and until it is overturned by a Court, an adjudicator’s decision may be enforced just like a formal Judgment of the Court.
Payment Bond Claims, Redesigned and More Responsive
Labour and Material Payment Bonds (Payment Bonds) have been around for a long time and provide protection to subtrades to ensure that they will be paid for their work. A common criticism has been that as long as a General Contractor is solvent, the Surety will look to support them by either delaying a decision or denying a claim. Under the new legislation Payment Bonds have been redesigned to be more responsive and provide greater protection to subtrades including:
The Surety is now required to respond within specific timeframes. They must acknowledge the receipt of a claim within three business days and take a position within 10 business days.
Undisputed Amounts must be paid. These items can no longer be held up as leverage on the overall dispute.
Two tiers of coverage are the new standard coverage. Contractors that have been subcontracted to a subcontractor who works for the General Contractor can now make a claim.
Liens, the Traditional Remedy
Under the new Construction Act, as with the previous Construction Lien Act, any person who supplies services or materials to an Improvement (e.g. a construction project) is deemed to have a lien against the said improvement. Depending on the nature of the project, liens must first be preserved, either by registering the lien against title to the project or delivering notice of the lien (primarily on projects owned by public bodies, such as the Crown). After the lien is preserved, it must also be perfected by the commencement of a legal action. In most cases, where the preserved lien has not been vacated from title, the lien claimant must also issue and register a Certificate of Action against title to the project. The lien is often considered the “nuclear option” in construction disputes, because payors will typically not advance funds in the face of a lien, which causes cash flow on a project to come to a grinding halt. In such cases, an owner or general contractor on a project will typically post security into Court (often in the form of a lien bond) to vacate the lien from title, thus allowing cash flow on the project to resume.
The biggest change to liens under the new act is that, for qualifying contracts, the timelines for preservation and perfection of liens have been extended. Under the old Construction Lien Act, a lien claimant had only 45 days from the applicable triggering event to preserve its lien, and 90 days from the same triggering event to perfect its lien. Under the new Construction Act, these basic timelines have now been extended to 60 days for preservation of the lien and 150 days for perfection of the lien (the timelines may be further extended if the dispute is also subject to adjudication). The extended timelines are in part an effort to encourage parties to use the new adjudication mechanism under the Construction Act before resorting to liens. However, a party does maintain the right to pursue both adjudication and lien remedies simultaneously.
Keep in mind that the new timelines for the preservation and perfection of liens pertain only to claims where (a) the prime contract was entered into prior to July 1, 2018, or (b) where the related procurement process was commenced prior to July 1, 2018, or (c) where the project relates to a leased property and both the lease agreement and prime contract were entered into prior to July 1, 2018.
With the new prompt payment and adjudication regime, payment bond claims and construction liens to consider, plus various other significant changes to the Construction Act, it can be challenging to know what your next step should be. Contact us to find out if your contract fits the criteria for these payment methods.
Purves Redmond Limited
Matthew Newman – Surety Practice Leader
Adrian Visheau – Associate
Disclaimer: This high-level overview of several aspects of the new Construction Act is for informational purposes only. The above is not intended to be, nor can it be relied upon, as legal advice.