Recently, Ontario’s Construction Lien Act underwent some significant changes, including to its name, as it is now the Construction Act[i] . The changes are intended to: (a) modernize the construction lien and holdback rules, (b) help make sure that workers and businesses get paid on time for their work, and (c) help make sure payment disputes are addressed efficiently. The lien and holdback changes came into effect on July 1, 2018, while the prompt payment and adjudication provisions just recently kicked in on October 1, 2019.
Lien and Holdback provisions
With respect to the provisions relating to construction liens and holdbacks, the changes to the Act will only apply to projects where the contract for the project was effective on or after July 1, 2018, the procurement process for the improvement was commenced by the owner on or after July 1, 2018; or the premises are subject to a leasehold interest and the lease was first entered into on or after July 1, 2018.
Some of the most important changes to this portion of the Act are as follows:
1. The new provisions clarify how the Act applies to Alterative Financing and Procurement (“AFP”) project models, and changes regarding the release of statutory holdback. Specifically, the new Act provides that for specific statutory provisions, the special purpose vehicle, or “Project Co” who contracts with the public sector entity to undertake the project will be deemed to be the owner, and the contract between the Project Co, and the contractor will be deemed to be the contract. This applies to statutory provisions for determining substantial performance, calculating the lien period, the certification of substantial performance and information requests made pursuant to the Act.
2. Public sector owners, such as the Crown, municipalities and broader public sector organizations, are required to have a surety bond on public contracts above a prescribed amount, and AFP arrangements are subject to a minimum coverage limit in order to protect subcontractors and workers if the general contractor files for bankruptcy.
3. Contractors and subcontractors now have 60 days to register a lien and 90 days to start a court action (previously it was 45 days and 45 days).
4. It is now mandatory for project owners and other payers to pay contractors and subcontractors holdbacks once the timeline to file liens has passed, unless the owner publishes a notice of non-payment in the prescribed form within 40 days of the issuance of the certificate of substantial performance, and notifies the contractor of the publication. Practically speaking, this requires the owner to have a good reason to refuse the release of the holdback or else there is a risk of lien disputes at the conclusion of the project. This is because the non-payment of the holdback notice must be published within the time for filing a lien. Therefore, contractors and trades will most likely exercise their right to lien if they receive notification that the holdback won’t be released. This helps contractors and subcontractors plan, accept contracts for new work and have more certainty about when the holdback will be paid.
5. Holdbacks may be released on an annual or phased basis if certain conditions are met, including the following:
a. The contract provides for such payment;
b. The contract price is $10 million or higher; and
c. There are no preserved or perfected liens, or all liens have been satisfied or discharged under the Act.
The prompt payment provisions only recently came into effect on October 1, 2019. The Act now includes provisions for a prompt payment framework to make sure that contractors, subcontractors and workers are paid on time. Owners and general contractors must agree to a deadline to submit an invoice. If they do not agree, the contractor will be required to submit invoices to the owner on a monthly basis. Further, owners are required to pay general contractors within 28 days after the owner receives the invoice from the contractor. General contractors must pay subcontractors seven days after receiving payment from the owner and subcontractors must pay their subcontractors within seven days of receiving payment. Finally, contractors and subcontractors have a right to charge mandatory interest on late payments beginning when the amount is due.
A failure to adhere to the prompt payment provisions triggers certain remedies, including the requirement to pay a prescribed rate of interest and the potential referral of the dispute to adjudication. In fact, in certain situations, such as when the contractor is not able to pay its subcontractors because it has received a notice of non-payment from the owner, then the contractor is required to refer its dispute with the owner to adjudication.
Arguably the most significant change to the Act are the new dispute resolution provisions which also came into effect on October 1. As noted above, in certain situations, the prompt payment provisions mandate that the dispute be brought before arbitration. Matters may only be adjudicated by a person who has been identified as a qualified adjudicator by an entity called the Authorized Nominating Authority (“ANA”), which is designated by the Ontario government. The ANA is responsible for training and qualifying adjudicators and maintaining their registration. The adjudication process is commenced by filing a notice of adjudication, and the adjudicator may be appointed by the parties or by the ANA.
Further, the provisions set out timelines for the life of the adjudication process. For example, a party initiating the adjudication must, within five days of an adjudicator being appointed, provide the documents that they intend to rely upon in the dispute resolution process. In addition, the adjudicator must render a decision within 30 days after receiving these documents. Finally, a party who is required by the adjudicator’s determination to make a payment must do so within ten days of the decision being made, failing which interest will be payable and a contractor or subcontractor who has not been paid is entitled to suspend their work with compensation for costs incurred in the meantime.
Why does this matter to B.C.?
It is evident that the changes to the Construction Act will impact every area of the construction industry in Ontario, but what significance does this have to British Columbia? On May 28, 2019, the B.C. Liberals introduced Bill M-223 (the Prompt Payment (Builders Lien) Act) whose underlying objective is to amend the existing Builders Lien Act[ii] to bring it in line with other jurisdictions who have introduced prompt payment legislation. The Bill mirrors the prompt payment provisions of the Ontario Construction Act including the requirement of giving a proper monthly invoice, the 28-day payment period following the receipt of a proper invoice from a contractor, the 14-day period for an owner to review a proper invoice prior to providing a notice of non-payment and a 7-day payment period for a contractor to pay its subcontractors. The Bill also references the use of adjudication to resolve disputed amounts (but does not provide for a specific alternative dispute resolution process). Therefore, it is worth keeping an eye on the implementation of the Construction Act in Ontario to see whether the new provisions are effective in advancing the underlying goals of the legislation, as the proposed B.C. legislative changes will most likely follow suit.
[i] R.S.O. 1990, Chapter C.30
[ii] SBC 1997 c.45