Most sureties, contractors, subcontractors, suppliers and public owners in Ontario are aware of Bill 142 and have a general sense of the improvements that the new measure will bring to construction industry once it takes effect. Below is a summary of the key features of the Construction Act of Ontario that will hopefully lead to a broader understanding of its provisions and objectives.
The cornerstone of the new Act will be the introduction of Canada’s first prompt payment regime for the construction industry. The new law provides mandatory minimum time periods for payment from the top to the bottom of the construction pyramid with an owner now being required to pay the contractor within 28 days from receipt of a “proper invoice”. If the owner disputes a proper invoice, the owner must deliver a ‘notice of non-payment’ to the contractor within 14 days of receiving it.
Similarly, a contractor, who receives payment of a proper invoice, must pay the subcontractors that were included in that invoice no later than 7 days after receiving payment from the owner.
The prompt payment provisions of the Act are supported by a robust scheme for quick dispute resolution in the form of interim adjudication during the project. The adjudication provisions have strict timelines to ensure the timely resolution of disputes which require an adjudicator to make a written determination, with reasons, within 30 days of receiving the documents from the party who requested the adjudication. The determination is binding on an interim basis meaning that the parties may appeal to the courts once the project has been completed.
Updates and Improvements:
In addition to the newly introduced enhancements of prompt payment and fast tracked adjudication, the Construction Act of Ontario improves and updates several of the woefully out of date provisions of the old Construction Lien Act; most of which had remained unchanged since 1983. Probably the most notable of these improvements are found in the new Act’s treatment of construction liens, holdbacks and trust funds.
The new lien provisions are found in Part III of Bill 142 which now increases the deadline for preservation of liens to 60 days from the applicable date (from the current 45 days). The perfection of liens must be completed within 90 days of the last possible date on which the lien could have been preserved, extended from 45 days under the current law. These longer timelines are intended to provide additional breathing room for parties to resolve issues before proceeding with a lien, and encourage settlement, as opposed to litigation. They’re also intended to accommodate the adjudication process so that the two features can dovetail in their operation.
The Act also provides additional certainty around holdback payments which may now be made on an annual basis, or through an agreed-upon set of phases or portions, to reflect the long-term nature of many modern construction projects. More importantly, the former act did not mandate that the holdback be paid when all liens that could be claimed against it expired, were discharged or satisfied.The Act now requires payment of the basic and finishing holdback, unless a notice of non-payment is delivered setting out the reason for non-payment, and the issue is referred to adjudication.
From a surety perspective, it’s noteworthy that the holdback will no longer need to be retained in cash, but can be maintained through other security, including a prescribed Holdback Repayment Bond (Form 5) which can be accessed by CLICKING HERE (revised May 2019).
Finally, the Act imposes new duties on contractors and subcontractors who are trustees of trust funds. Specifically, trustees are required to deposit funds received on account of their contract/subcontract price into a bank account in the trustee’s name. They must maintain written records which detail the amounts received into and paid out of the trust funds and any other prescribed information. If more than one trust is involved, the trust funds may be deposited into a single account; however, the trustee must maintain separate records for each trust.
Mandatory Performance and Payment Bonds:
The Construction Act of Ontario features a new Section 85 which requires any contractor who enters into a “public contract” in the amount of $500,000 or greater to provide 50% performance and payment bonds using the prescribed forms.
The term “Public Contract” is very broadly defined in the Act and includes any contract where “…the owner is the Crown, a municipality or a broader public sector organization.”. In the AFP/P3 context, Section 1.1 (4) 1 of the Act provides that “...the agreement between the special purpose entity and the contractor is deemed, for the purposes of (surety bonding), to be a public contract”.
These provisions are modified somewhat by the regulations which have been approved by Cabinet. A more detailed discussion of the surety-related regulations can be found by CLICKING HERE . To review copies of the prescribed bond forms, click links below:
Effective Dates & Transition:
SAC has received several inquiries regarding the effective dates and any rules for transitioning to the new regime. The implementation of the new rules will be staggered to allow the industry time to set up any administrative support structures required to ensure compliance with new laws and regulations. Thus, the new rules will be brought into effect in two phases:
- July 1, 2018 - For amendments that apply to existing provisions such as holdbacks, construction liens, trusts and bonding.
- October 1, 2019 - For amendments that require ramp-up time to allow affected stakeholders to develop appropriate support structures such as Prompt Payment, adjudication, and Liens against municipalities.
As to transition rules, the old regime will still apply where:
- The contract was entered into before the implementation date.
- The procurement process (RFQ, RFP, tender call) is commenced (not concluded) before the implementation date. In other words, the trigger date will not be the closing date of the tender, but the date on which the tender call was issued by the owner.
- The facility is subject to a leasehold interest and the lease is entered into before the implementation date.
This information is provided for information purposes only and is not intended to be exhaustive or authoritative. Nothing here should be construed as legal advice and readers are urged to read the Construction Act of Ontario and supporting documentation thoroughly and consult with counsel for advice as to specific issues.