Ontario’s New Construction Act: It’s Here!

Andrew Heal

On May 31, 2017, the Ontario government introduced Bill 142, “An Act to Amend the Construction Lien Act” and it recently passed third reading on December 5, 2017, and the new Construction Act will become law once proclaimed in force. This represents the culmination of an extensive two-year review of the Ontario construction lien legislation. This draft legislation was the result of the 2016 Expert Review “Striking the Balance: Expert Review of Ontario’s Construction Lien Act”.

Bill 142 represents significant amendments to the existing statutory regime in Ontario and is being closely watched by other provinces in Canada. Along with a modernization of the Ontario Construction Lien Act (now to be called simply the Construction Act), which is expected to come into force in 2018, this new Act has something for everyone. The Expert Review, conducted by Bruce Reynolds and Sharon Vogel, with the assistance of an Advisory Panel, should be pleased that virtually all of their recommendations have been reflected in the current legislation, as amended.

There was also significant industry consultation leading up to the Review Report and Bill 142, including many meetings with industry stakeholders, owners’ groups, contractor and subcontractor groups, and suppliers and trade association organizations. The legislation has had broad support and passed third reading on December 5, 2017, as amended. Various provisions will come into force on Royal Assent, and others on dates to be proclaimed.

A consensus about three core issues to improve Ontario’s existing Construction Lien Act (CLA) and is reflected in the new Construction Act:

• modernizing the lien/holdback regime, and extending some lien timelines,
• introducing a promptness of payment regime, and
• introducing targeted adjudication.

Significantly, there will be changes to the regime of construction trusts in Ontario.

Key Takeaways:
Cash flow is the lifeblood of the construction industry, ^[1]and at the root of the modernized Construction Act, is the need for prompt payment. The new Act will include a new prompt payment regime and a new definition of a “proper invoice” to facilitate that prompt payment. This will provide some certainty for both payees and payors under a contract, and requires an order to pay no later than 28 days after receiving the “proper invoice”. There is an exception to allow an owner who disputes a proper invoice to refuse to pay some, or all, of the invoice within certain timelines. A contractor will have 7 days to pay a subcontractor but only after being paid.

Another important change to the existing legislation is the addition of the contractors’ and subcontractors’ duties regarding trust funds in amended section 8. A new section 8.1 is added to the Act, imposing duties that require the trust funds to be deposited in a specified manner and for records to be kept that include specified details. This enhanced trust accounting protects contractors’ and subcontractors’ suppliers and trades below in the event of an insolvency or bankruptcy.

These changes are intended to reflect industry practice to ensure that monies paid upstream are traceable and available downstream for the suppliers and trades who work at a project.

There will also be a new statutory interim dispute resolution process to facilitate faster dispute resolution during project performance called “Adjudication” which allows specialized decisions from industry adjudicators. “Adjudication” means a “construction dispute interim adjudication” under new Part II.1 before an impartial adjudicator.

The kinds of disputes eligible for interim adjudication primarily relate to: the valuation of services or materials provided, or payment disputes or proposed change orders, disputes that are the subject of a notice of non-payment, set off claims, non-payment of the holdback or any other matter the parties agree to submit to an adjudication, or that may be prescribed under the new Act.

Adjudicators are appointed by the “Authorized Nominating Authority” under the Act and until that body is created the Attorney General of Ontario (or his or her delegate) will appoint adjudicators on any interim. Adjudicators must have dispute resolution experience relevant to the construction industry, and may not necessarily be lawyers. Indeed, many architects, engineers, or quantity surveyors may be better suited for the prompt resolution of payment disputes. Adjudication has been in force in the United Kingdom for several decades (it should be remembered that in the United Kingdom there are no construction liens). The scope of an adjudication is set out in the new Construction Act. The fees for the adjudicator will also be prescribed or fixed, as the parties agree, with the adjudicator.

There are tight timelines for adjudication. A party should be prepared to marshal their evidence and arguments quickly, make presentations in an ad hoc but persuasive manner, and most submissions will take place in writing. Five days after the appointment of an adjudicator, relevant documentary materials will have to start to be delivered, and the adjudicator is required to make a determination of the matter no later than 30 days after receiving the documents. There are provisions that would later allow a court challenge to an adjudication decision on a number of enumerated grounds, but the adjudication has interim binding effect.

There are broad powers given to the adjudicator including taking the initiative of obtaining the assistance of outside experts. ^[2] Also, the adjudication award has “teeth”; an amount determined to be owing must be paid no later than 10 days after determination by the adjudicator, and interest is chargeable at the contract or subcontract rate or the Courts of Justice Act rate (subsection 127(2)), whichever is greater. Importantly, the payee has a right to suspend further work until the party that has to pay makes the payment. Further, the amended Act allows an application to Court to enforce payment.

Some other key amendments to the Act are discussed below:

• Technical amendments, including:
• Extended timelines within which to register (preserve) a lien to 60 days, and to commence an action in Ontario to enforce that lien (perfect) to 90 days allowing 150 days total to maintain lien rights before having to proceed in court;
• Clarifying the definition of “owner” to better reflect public projects that have multiple owners;
• Requiring payers to pay holdbacks once the timeline to file liens is past, given greater certainty as to the payment of holdbacks;
• The set off rights to trust funds in section 12 and 17(3) are narrowed to debts or claims only “related to the improvement”.
• Allowing condominium unit owners to remove liens from common elements more easily, involving common element repair work;
• Requiring surety bonding on certain public sector projects; and
• Allowing construction liens under $25,000 to proceed in Small Claims Court.

Finally, it must be remembered that the existing and un-amended provisions of the Construction Lien Act would continue: parties cannot contract out of the Act or its remedies (section 4), and every contract and subcontract is deemed to be amended to conform to the Act (section 5). How and to what extent Public Private Partnerships (P3’s) will be impacted by the new proposed legislation is still working itself through.

The new Construction Act, once proclaimed in force, is an important tool for construction industry participants to ensure contractual rights and obligations are respected, that payments flow promptly from upstream to downstream participants, and that disputes if and when they occur, can be resolved promptly, and not deferred long into the future.

Ontario is, and continues to be, an important driver of the Canadian and North American economies. Projects here attract local, national, and international construction industry participants to better provide construction services and materials to the people of Ontario.