Are You Ready? The New Construction Act

Prompt Payment and Adjudication are Almost Here!

By: Marta O. Lewycky

Click here to see this article featured in the Minden Brief 2019 Summer Newsletter.

It's been over a year since the first set of amendments to Ontario’s Construction Lien Act (renamed Construction Act) were proclaimed. Here’s what is in force and what’s to come later this year.

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Two dates to remember:

• July 1, 2018: amendments come into force, except for prompt payment and adjudication
• October 1, 2019: prompt payment and adjudication of construction disputes in force

Since July 1, 2018, there have been further amendments to the Act and regulations, as recently as May 2019. There may be more amendments to come.

Transition Rules - when do the new changes apply?

• Construction Lien Act (pre-July 1, 2018 changes):
  • Contracts entered into before July 1, 2018
    Contracts after July 1, 2018, where procurement process began before July 1, 2018
    Leases entered into before July 1, 2018, where a contract for improvement was entered into or procurement process commenced between July 1, 2018, and December 5, 2018
• Construction Act (with July 1, 2018 changes)
  • Contracts entered into on or after July 1, 2018
    Contracts after July 1, 2018, where procurement process began before Oct 1, 2019
• Construction Act (with July 1, 2018 changes, prompt payment and adjudication)
  • Contracts entered into on or after October 1, 2019

THE JULY 1 2018 - Highlights: New Deadlines, New Forms

1. Lien periods:
   • 60 days to preserve a lien (up from 45)
   • 90 days to perfect a lien (from 45)
   • Must publish notice of contract termination
2. Holdbacks
   • Mandatory release, unless the payor publishes notice of the amount it refuses to pay
   • Annual or phased holdbacks for certain contracts of $10 million or more
   • Alternative security: letter of credit or holdback release bond
   • Landlords required to holdback 10% from payment for an “improvement accounted for” in a lease, renewal, or other agreement with Landlord as a party
   • Nothing prevents a landlord from being an “owner” if it meets the definition in the Act
3. Right to Information
   • Landlords must respond within 21 days to a written request for information including “state of accounts” (a defined term) between the landlord and the tenant
4. New Substantial Performance and Completion Thresholds
   • Substantial performance threshold increased to $1 million from $500,000:
     • 3% of the first $1 million of the contract price
     • 2% of the next $1 million, and
     • 1% of the balance
   • Completion is deemed achieved when the cost to complete is the lesser of 1% of contract price and $5,000
5. Multiple Improvements
   • Multiple improvements in a contract can be deemed under separate contracts if the contract so provides and the improvements are on non-contiguous lands
6. Bonds
   • Public contracts of $500,000 or more require a labour and material payment bond and a performance bond with coverage of at least 50% of the contract price
7. Condominiums
   • Unit owners can vacate a lien registered against the common elements of a condominium by paying into court or posting security in the amount of the proportionate share of the unit owner’s interest in the common elements
8. Capital Repairs added to definition of “Improvement”
   • Includes a repair intended to extend the normal economic life or to improve the value or productivity but does not include maintenance work to prevent deterioration or to maintain in a normal, functional state 

THE NEW: Prompt Payment and Adjudication – October 1, 2019

Prompt Payment

Upon receipt of “proper invoice”, Owner has:

• 28 days to pay, 14 days to give notice disputing
• must pay all undisputed amounts within the original 28 days

 If Owner pays full amount, Contractor has:

• 7 days to pay subcontractor or
• 35 days to deliver notice of non-payment to subcontractor

If Owner does not pay, Contractor has:

• 7 days to deliver notice of non-payment to subcontractor AND undertake to refer the matter to adjudication, or
• 35 days to pay subcontractor

If Owner pays in part, Contractor has:

• 7 days to pay subcontractor from the amount received from Owner, deliver notice of non-payment to subcontractor for balance, and undertake to refer to adjudication, or
• 7 days to pay subcontractor from amount received from Owner and 35 days to pay subcontractor the balance, or
• to deliver notice of non-payment to subcontractor within prescribed deadlines (similar deadlines apply to the subcontractor to pay the sub-subcontractors, and so on down the construction chain)

​Invoices

• Monthly invoicing, parties can agree to a different schedule
• “Proper invoice” is defined with minimum requirements; parties can add their own requirements so long as don’t conflict with the Act
• Cannot contract out of prompt payment deadlines once a “proper invoice” is received
• Cannot be conditional on pre-certification or owner approval (some exceptions)

Adjudication

Mandatory for prescribed disputes, other disputes parties can agree.

Cannot contract out of adjudication.
ADR Chambers has been selected to act as the Authorized Nominating Authority (ANA) and run the adjudication process and select/train adjudicators. Parties cannot pre-select adjudicator in contract, selected once adjudication commences.

Timing for adjudication is short:

• After initiating notice, adjudicator has 4 days to agree or ANA appoints within 7 days
• Initiating party has 5 calendar days to provide documents it intends to rely upon
• Adjudicator must render decision within 30 days of receiving documents; deadline can be extended by agreement of the parties and adjudicator
• Decision is binding unless and until same matter is determined in court or by arbitration
  Limited judicial review
• Must pay within 10 days of decision or contractor can suspend work with costs

Tips

• Update your precedent construction contracts and lease templates
• Be conservative with dates/deadlines during the transitional period if not sure what regime applies
• Train staff to understand the new legislation and the new forms
• Ensure internal approvals and processes are in place to meet these deadlines
• Ensure your records and documents are accurate, complete and readily available
• Landlords: be prepared to respond to s. 39 inquiries