In July 2018, we saw changes to the liens, holdback rules, trust accounting and surety bonds as a result of the Construction Lien Amendment Act. These changes were discussed in the last installment of our series on the new rules for construction in Ontario. In today’s installment, we will examine the changes to the Construction Act which take effect October 1, 2019 and explore how these changes will impact your business. These changes are intended to promote a better payment dispute resolution system; however, your business will need to organize its timelines.
Under the new Act, contracts entered into on or after October 1, 2019 will be subject to new regulations which include a prompt payment system and a new adjudication process. The timeline for the prompt payment provision will be triggered by the monthly delivery of a “proper invoice”. This is defined in the Act as a “written bill or other request for payment for services or materials in respect of an improvement under a contract.” The proper invoice must include specific details as per the Act, in addition to meeting any additional terms specified in the parties’ contract. The provision will require owners to pay contractors or provide notice of non-payment indicating the amount not being paid and reasons for not paying, within 28 days of receipt of the proper invoice. In turn, the contractor will have 7 days from receipt of payment or notice of non-payment, to either pay their subcontractor or provide each affected subcontractor with a copy of the owner’s notice of non-payment and the contractor’s notice of non-payment. Contractors issuing a notice of non-payment must start adjudication within 21 days. The same terms apply to any subcontractors owing payment to sub-subcontractors. The concept of a proper invoice is only applicable in the owner-contractor relationship, and therefore does not apply to subcontractors and sub-subcontractors.
The intention of introducing the new adjudication process is to enforce the prompt payment provision by providing timely dispute resolution. The contractor or subcontractor who initiates adjudication must also propose an adjudicator. If the proposed adjudicator is not accepted within 4 days, one is appointed by the Authorized Nominated Authority within 7 days. The initiating party is required to provide supporting documentation for their claim within 5 days of the appointment, after which the adjudicator will issue their written decision within 30 days with the ability to delay their decision by 14 days. Any payments mandated by the adjudicator’s order is required to be made within 10 days.
These prompt payment and adjudication provisions are intended to accelerate the payment process and to ultimately keep your projects moving on schedule by preventing work stoppages caused by late payment. Business owners will need to ensure their current processes and systems have the capability to comply with the requirement to produce proper invoices and issue notices of non-payment as required, and within the specified timeline.
If you have immediate questions about how these changes will affect or are affecting your business, email us at info@fazzaripartners.com and we will be happy to chat about what the new Construction Act means for you.
The information in this article is of a general nature and is in summary form. Contact one of our professionals to discuss these matters in the context of your situation before acting upon such information.
