Written By Julia E. Schatz, Joseph N. Blinick, and Alexander C. Payne
On May 31, 2017, Bill 142—An Act to amend the Construction Lien Act1 (the “Act”)—was carried through a first reading by the Ontario Legislative Assembly. If passed, the proposed amendments to the Construction Lien Act would modernize the now-dated legislation to better reflect the contemporary realities of the complex construction sector in Ontario. Bill 142 will proceed to a second reading and committee review in September 2017, when the legislature resumes.
The proposed legislation would implement a new prompt payment regime and a new binding interim dispute resolution mechanism, both of which aim to prevent delays to and the outright cessation of complex construction projects. There are also several other notable proposed amendments to the existing legislation. Below is a brief overview of some of the most important proposed changes.
Mandatory Prompt Payment Regime
The Ontario government believes that late payments are endemic to the construction industry; the government reports that between 2002 and 2013 the average collection period in the industry increased from 57 to 71 days. The Act aims to significantly reduce this timeframe. The main aspects of this regime are as follows:
- An owner must pay a contractor within 28 days after the owner receives a proper invoice.
- Upon receipt of payment, the contractor must pay its subcontractor within seven days, and so on down the construction pyramid.
- These timelines are mandatory and cannot be varied by contract.
- The parties can, however, contractually agree on how frequently invoices will be provided. In the absence of such an agreement, the proposed legislation stipulates that invoices must be provided monthly.
- If the prompt payment scheme is not adhered to, interest will accrue on the outstanding balance at the higher of the contractual amount or the prejudgment interest rate determined under subsection 127(2) of the Courts of Justice Act.
- The prompt payment regime will not have retroactive effect—it will only apply to contracts entered into on or after the date the amendments come into force.
Mandatory Adjudication Regime
The Act creates an interim adjudication regime intended to quickly resolve disputes between parties and reduce disruptions to a construction project. The adjudication regime will only apply to construction contracts entered into on or after the date the amendments come into force.
Adjudication commences when a party to a contract refers a prescribed matter to adjudication. Prescribed matters include: valuation of services or materials provided under the contract, payment under the contract, and non-payment of holdback. Much like arbitrators under Ontario's domestic and international arbitration legislation, adjudicators will have broad powers to determine the appropriate adjudication procedure. The proposed adjudication timelines are expeditious:
- The adjudicator will be appointed at most 11 days after the delivery of a notice of adjudication.
- After the adjudicator is appointed, the party who gave notice must deliver a copy of the contract or subcontract and any documents the party intends to rely upon during the adjudication within five days.
- The adjudicator must issue a determination within a maximum of 35 days from when the adjudicator is appointed or agrees to adjudicate.
- The adjudicator can request an additional 14 days to issue a determination, which the parties may consent to in writing.
- A party ordered by an adjudicator to make a payment shall make the payment within 10 days.
While parties will have the right to appeal an adjudication to the court or to arbitration, the practical effect of the adjudication regime will be that minor disputes will be resolved and payment will be made within a few months, rather than upwards of several years.
Other Notable Amendments
Extended Timelines for Filing Liens
- The deadline for the preservation of a lien and the retention of basic holdback after substantial completion has been certified will be increased from 45 days to 60 days.
- The deadline for perfection of a lien (following preservation) will be increased from 45 days to 90 days.
- The extended timelines will likely govern construction projects that are ongoing at the time the Act comes into force, in addition to all future projects.
Mandatory Payment of the Holdback
- On a typical project, after the lien period expires the owner will be required to promptly pay the holdback funds, unless the owner has previously published a notice of non-payment/set-off, such publication being required within 40 days after certification of substantial completion.
- For longer or phased projects, the release of the holdback can be staggered in accordance with the completion of each phase.
- The amendments regarding the mandatory payment of the holdback will likely govern construction projects that are ongoing at the time the Act comes into force, in addition to all future projects.
Amendments to Trust Provisions
- While project-specific bank accounts will not be required, a trustee under the Act must maintain written records regarding trust funds, including payments into and out of the account.
Referral to Small Claims Court
- Lien claims under $25,000 may be referred to the Small Claims Court.
Other than the new prompt payment and adjudication regimes, it appears that the proposed amendments will govern construction projects that are ongoing when the Act comes into force. Therefore, it is critical that construction industry stakeholders have a thorough understanding of the proposed amendments before they come into force, rather than being taken by surprise after the fact.
The above update provides a brief overview of the proposed amendments to the Construction Lien Act. However, it is not all-encompassing nor is it a substitute for the advice of experienced legal counsel. At Bennett Jones, we have a team of knowledgeable professional advisors that can provide legal and strategic guidance to all Ontario construction industry stakeholders as the sector continues to grow and the legal landscape continues to evolve.
* The authors are grateful to Paul Blundy, Partner, Head of Public Infrastructure Projects, and Sarah Bernamoff, Summer Student, for their assistance in the preparation of this update.
1 Bill 142, An Act to amend the Construction Lien Act, 2017, 2nd Sess, 41st Leg, Ontario, 2017.