Prompt Payment, ADR: New Construction Act in Ontario to reshape industry practices

ibew naqvi
Attorney General Yasir Naqvi (L) with IBEW Local 353 business manager Steven Martin & John Grimshaw, John Grimshaw, executive secretary treasurer of the IBEW Construction Council of Ontario, celebrating the introduction of prompt payment legislation at a Queens Park reception.

Prompt payment, dispute resolution and construction lien updates included in wide-ranging legislation

Ontario Construction Report staff writer

Ontario has introduced the long-awaited new Construction Act that will reshape industry practices, with new prompt payment rules, an industry-specific adjudication system and an updating of the current Construction Lien Act.

Attorney General Yasir Naqvi introduced the legislation on May 31, culminating years of lobbying by trade contractors for prompt payment legislation, and an extensive review of the existing law – leading to the implementation of almost 100 recommendations – by attorneys Bruce Reynolds and Sharon Vogel.

The legislation still needs to go through Legislative Assembly readings and committee review, and there will be further input and possible amendments before it is promulgated. Naqvi has said the government’s goal is to have the legislation enacted by the end of the year.

“Our proposed reforms are the biggest changes to Ontario’s construction industry in over 30 years,” he said at a legislative reception after Bill 142 was introduced. “If passed, they would reflect the current needs of the industry . . . and support the thousands of people who work in it.”

The changes and provisions include:

Updating construction lien and holdback rules

  • Clarifying the definition of “owner” to better reflect public projects that have multiple owners;
  • 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;
  • Allowing condominium unit owners to remove liens from their unit in relation to common elements, such as corridors, lobbies, the garage and roof; and
  • Providing for the referral of construction lien claims under $25,000 to the small claims court.

Creating a prompt payment system

payment timeline

  • The proposed prompt payment system would ensure that contractors, subcontractors and workers are paid in a timely way;
  • 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;
  • In cases 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; and
  • 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.

Speeding up dispute resolution

payment timeline

  • 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. 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; and
    The adjudicators would be experts who have had extensive experience in the construction industry and who have experience or training in dispute resolution.

One provision in the new law removes wording that would required anyone posting the required Certificate of Substantial Performance to advertise this news only in the Daily Commercial News. The wording in the existing Construction Lien Act is so specific that the only place anyone can advertise these notices is in that publication.

Under the proposed new legislation, “Paragraphs 5 and 9 of subsection 32 (1) of the Act are amended by striking out ‘once in a construction trade newspaper’ wherever it appears and substituting in each case ‘in the manner set out in the regulations’,” and the requirement that the notice be placed in a “construction trade newspaper” is removed from the definitions.

It is not clear yet what regulations will be implemented to replace the existing substantial completion notification process.

In a news release Prompt Payment Ontario (PPO) described the legislation as “a ground breaking step in the right direction (that) will help protect over 400,000 workers across the province.”

“Ontario is the first province in Canada to introduce prompt payment legislation – leading the way for other provinces across the country and the federal government to do the same.”

“We are happy to see the government is doing the right thing to solve this problem, PPO director Ron Johnson said. “Prompt Payment Ontario, and our wide-reaching membership, are hopeful that the government will stay true to their commitment and pass this important legislation in the fall of 2017.”


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