Ontario Makes Performance and Payment Bonding Mandatory for Public Contracts
On December 12, 2017 Bill 142 “An Act to amend the Construction Lien Act”[1] received royal assent in the Ontario Legislature. The Bill significantly amends and updates the now 35 year old Ontario Construction Lien Act, and attempts to address a multitude of problems which commonly arise in modern construction projects including payment delays, resolution of disputes, and insolvency of contractors.
One of the most notable developments in Bill 142 is the creation of mandatory performance and payment bonding on “public contracts” which are defined as any contract between a contractor and an owner who is the Crown, a municipality, or another public sector organization. Of note, the bonding requirement does not apply to engineers or architects, nor does it apply to projects in Ontario where the owner is a federal entity. This requirement is akin to the obligations imposed under the American Miller Act which has been in place since 1935, and is timely given that rising Canadian interest rates may result in increased insolvency of general contractors as costs of financing increase.
While Bill 142’s mandatory bonding requirement has been confirmed, key pieces of the legislation still must be settled via the regulations, including the minimum contract price where bonds are required, and the coverage limit percentage. Determination of minimum contract price will be critical to defining the scope of mandatory bonding, and will be the difference between bonding being the norm for the majority of Ontario’s public contracts or being reserved for only large infrastructure works. Additionally, determination of the coverage limit percentage, which had originally been set at the industry standard 50% but is now set to be prescribed via regulation, will dictate both the scope of financial security public owners and sub-contractors have under the bond, and at the same time will determine the premiums that contractors will incur to have the bond issued.
While surety providers in Ontario, and nationally, have been following Bill 142’s progression through the Ontario legislature and will not be surprised by the imposition of mandatory bonding, general contractors who are regularly involved with public works projects in Ontario should be aware of this new requirement and the legal obligations that can be required in order be named as principal under a bond, including execution of indemnity and security agreements by a company’s principals. Additionally, sub-contractors engaged in work on Ontario public works should be aware of their rights and obligations under payment bonds, including deadlines within which a claim must be submitted, and whether the work they have performed qualifies them to claim under the bond.
While the details of Bill 142 still need to be finalized, the requirement for bonding on public contracts is a major development in the Ontario construction industry. While the immediate impact will only be felt in Ontario this amendment may serve as a precedent for future changes to the Western Provinces’ own lien legislation, but it will remain to be seen whether other jurisdictions will follow suit.
A further update to this article will be provided once regulations have been implemented, but for inquiries with respect to Bill 142 or other surety and bonding matters please feel free to contact, John Moshonas, John Fiddick, Michael Colwell, Robert Wilson, or Elizabeth Cordonier.
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[1] Bill 142, An Act to amend the Construction Lien Act, 2nd Sess, 41st Leg, Ontario, 2017 (assented to 12 December 2017) SO 2017, c 24.
