Prompt payment rules, rapid adjudication among proposed revisions to Ontario construction business rules

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Owners, contractors, subtrades and suppliers will have a “made in Ontario” prompt payment and adjudication system as part of construction payment law reform if the provincial government follows the recommendations of Bruce Reynolds and Sharon Vogel’s Construction Lien Act review.

The government released the long-awaited report in late September (completed in May after about a year of study and consultation) and says the provincial “Attorney General will gather feedback on the recommendations in the report through meetings with industry and stakeholder groups throughout fall 2016.”

The Association of Municipalities of Ontario (AMO) says it understands that the attorney general “intends to introduce legislation to enact the report’s recommendations in Spring 2017” after the stakeholder consultations.

Reynolds says he and Vogel believe the Construction Lien Act should be renamed the Construction Act: An Act Respecting Security of Payment and Efficient Dispute Resolution in the Construction Industry.

“It is our view that such a change correlates with the changes we recommend, the changes in the industry that have taken place since 1983 and the collective desire to move forward with a modernized piece of legislation.”

Key provisions among the 100 recommendations include:

  • Ontario should introduce prompt payment legislation, clearly setting out payment times and schedules (28 days for the owner to pay the general contractor and seven additional days for the general contractor to pay subtrades);
  • However, the contracting parties can modify the payment terms by contractural agreement, including provisions to allow the general contractor to defer paying subtrades if it isn’t paid itself (but the GC must provide proper notice of the reason, engage in measures to collect the funds, and only apply the payment claim delay for the specific project.)
  • There will be a rapid adjudication process for disputes “as a targeted interim biding dispute resolution method available as a right to parties to construction contracts and subcontracts in both the public and private sectors.”
  • The government should appoint a “first tranche of eminently qualified individuals based in key centres such as Ottawa, Toronto, London and Windsor, with a distinct set of criteria. . . to act as the group of initial adjudicators” until a specialized training and qualification system is fully implemented.

The adjudicator’s decision will be in place (each party will pay its own costs for the adjudication) “until the dispute is finally determined by legal proceedings (including lien proceedings) or arbitration (if provided for under the contract or the parties agree to arbitrate); or by agreement of the parties that the decision of the adjudicator is finally binding.”

“We recommend that parties maintain their lien rights such that, if a party wants to have a dispute finally determined through alien preceding, they can proceed to preserve and perfect and lien and proceed with a lien action,” the report recommends.

Reynolds and Vogel made several technical recommendations regarding the construction liens, including:

  • The time period for perfection under section 36(2) of the Act should be increased to 90 days from the last day upon which the lien can be preserved;
  • Valuations for substantial performance should be no more than three per cent of the first $1 million of the contract price, two per cent of the next $1 million, and 1 per cent of the balance.
  • There are changes as well in the rules on how and when holdbacks can be released, though the holdback will stay at 10 per cent.

Reynolds and Vogel call for “the identification of a pilot project for project trust accounts utilizing a representative number of projects in the public sector.”

“Over a period of two years, the selected pilot projects should be evaluated based on appropriate metrics in relation to their effectiveness and cost,” they wrote. “After two years, the performance of the project trust accounts n the pilot projects should be published and industry consultation conducted regarding their general adoption in the private and public sectors.”

The reviewers also recommend that “all public sector projects be required by the Act to be surety bonded” with provisions to protect subcontractors and suppliers from the risk of contractor insolvency on public projects.

Vogel and Reynolds received 77 written submissions and held 30 stakeholder meetings, involving more than 60 construction industry groups. They also developed an advisory group with construction industry and legal experts.

“We are pleased to deliver a report that strikes a balance between the diverse opinions we’ve heard throughout our stakeholder consultations, and between a number of mutually supportive payment, payment security and dispute resolution strategies,”

Reynolds, a senior partner at Borden Ladner Gervais LLP, said in a statement. “We believe our recommendations will address the key concerns of the many people who work in the construction industry, many of whom have contributed to our work, and will hep to modernize this important sector.”

Early responses to the report were positive.

Prompt Payment Ontario (PPO), whose failed bid for prompt payment legislation resulted in the Construction Lien Act review, said in a statement that its members “look forward to working with the government on the creation and introduction” of the new legislation.

“Late payment is one of the biggest risk to trade contractors, their employers and suppliers,” the PPO statement said. “We are glad to see the report’s recommendation to legislation a prompt payment for the public and private sectors. Putting this legislation in place will ensure that we can build ontario. Prompt payment is simply ‘doing the right thing’, those that oppose it must have another agenda.”

The AMO, which opposed certain aspects of the original proposed prompt payment legislation (Bill 69) said in a statement that it “will review the report, work with municipalities and other owners, and communicate with members as necessary to represent municipal government interests and take part in the consultations and policy development process.”

Image: The Construction Lien Act Review websiste

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