Construction law in Ontario is in transition as extensive changes to the Construction Act are rolled out. Seven years in the making, the amendments overhaul much of the Act (formerly known as the Construction Lien Act), and aim to modernize and streamline the industry. The first round of amendments, dealing with construction liens and holdback rules, came into effect back in July 2018. The second and final phase came into force on October 1st, 2019.
How does this second round of amendments affect owners, developers, contractors and subcontractors?
This post with explore the two main Construction Act changes: 1) the new prompt payment system, and 2) the updated adjudication process.
1) Prompt payment
One of the most important Construction Act changes is a prompt payment system which, through a series of payment timelines, will help to ensure that contractors, subcontractors and workers are paid on time. These timelines, however, are only triggered upon submission of a “proper invoice”.
What is a “proper invoice”?
Section 6.1 of the Construction Act now defines a “proper invoice” and specifies the information that an invoice must include in order to trigger the prompt payment requirements, such as the contractor’s contact information, the authority under which services or materials were supplied, and the payment terms. Although owners and contractors are able to require that other information be specified in an invoice, such requirements must be expressly stated in the contracting documents.
What are the timelines for prompt payment?
The prompt payment regime found in Part I.1 of the Construction Act now imposes the following deadlines:
- Owners have 28 days to pay a contractor after receiving a proper invoice;
- Contractors have 7 days to pay their subcontractors after receiving payment from the owner within the time specified above; and
- Subcontractors have 7 days to pay other subcontractors after receiving payment
This new prompt payment scheme is mandatory for all construction contracts. In addition, invoices must be issued to an owner by a contractor on a monthly basis, unless an alternative arrangement is agreed upon.
There are also strict timelines in the case of a dispute over all or part of an invoice. This process begins with the delivery of a Notice of Non-Payment, which specifies the amount of the invoice under dispute and the reason why it is not being paid. It is of note that all undisputed amounts remain payable according to the timelines described above.
After receiving a proper invoice, the following timelines for commencing a dispute become applicable:
- Owners have 14 days to provide contractors with a Notice of Non-Payment;
- Contractors have 7 days to provide subcontractors with a Notice of Non-Payment; and
- Subcontractors have 7 days to provide other subcontractors a Notice of Non-Payment.
If the dispute escalates or cannot be resolved between the parties, a new adjudication process, described below, becomes available.
The introduction of default interim adjudication will impact how construction disputes are resolved in Ontario. For those unfamiliar with the term, adjudication is a dispute resolution process that leads to a binding determination being made by an adjudicator, rather than by a judge, as would be the case with litigation. Adjudication has the benefit of often being less expensive and less time consuming than litigation.
Matters that can be referred to adjudication under the Construction Act include disputes relating to the valuation of services and materials, disputes that are the subject of a Notice of Non-Payment and disputes relating to the payment or non-payment of holdbacks. However, applications for adjudication are time sensitive: they must generally be made before the contract is completed. Furthermore, adjudicators may only address a single matter at a time, unless the adjudicator and the parties agree otherwise.
The fees for the adjudication are shared by the parties.
Who are the adjudicators?
The Authorized Nominating Authority (ANA) will oversee the adjudication process and will maintain a registry of qualified adjudicators. Adjudicators will have extensive experience not only in the construction industry, but also in dispute resolution. Only adjudicators listed in the ANA’s registry may be appointed to resolve a dispute under the Construction Act.
The adjudicator may be chosen by the parties, or they may ask the ANA to select one.
What is the procedure?
The adjudication follows the procedures for dispute resolution, if any, agreed to in the contract between the parties. If the contract does not contain such procedures, the adjudication will follow the process and timelines detailed in the Construction Act.
Broadly, this process is as follows:
- If one party wishes to refer a dispute to adjudication, they must give the other party a Notice of Adjudication. This document will include the name of the proposed adjudicator, unless the ANA is being asked to appoint one;
- An adjudicator has 4 days to consent to conducting the adjudication. If the ANA was asked to appoint an adjudicator, it must do so within 7 days;
- Five days after an adjudicator has been appointed, the party who initiated the adjudication must provide certain documents to the adjudicator, including the contract and any other documents that they intend to rely upon;
- The adjudication must be conducted, and a determination must be made by the adjudicator within 30 days of receipt of the documents described above; and
- If the adjudicator determines that funds are owed by either party, such funds must be paid within 10 days.
Can an adjudicator’s determination be set aside?
The decision made by the adjudicator is binding; however, there is further recourse if either party wishes to dispute or set aside the determination of an adjudicator. A party can apply to the Divisional Court for judicial review of the decision, but must do so within 30 days.
- These changes to the Construction Act are significant, and everyone working in the industry should know how they will be affected and be prepared.
- For owners, contractors and subcontractors, the prompt payment system imposes strict requirements and deadlines for payment. Although this may result in more administrative work, these changes should streamline the entire payment process.
- The new adjudication process means that most disputes can be quickly resolved via dispute resolution. This should help to keep construction projects on track and moving ahead, not bogged down or delayed by a series of costly court challenges.
For more information about how the amended Construction Act may affect your construction project, contact our Commercial Litigation Team.