As previously discussed, the Ontario Construction Lien Act was amended on July 1, 2018, and is now called the Construction Act. Two major amendments which introduce a new prompt payment and adjudication regime will come into force on October 1, 2019.
Prompt Payment Regime
Under the new Prompt Payment Regime, owners will have 28 days to pay a contractor after delivery of a proper invoice, and contractors will have 7 days to pay a sub-contractor (after getting paid by the owner).
Prompt payment is mandatory for all contracts. Parties can establish other payment structures not based on monthly progress payments by clearly setting them out in their contract, but the 28-day period will start once an invoice is submitted in accordance with that payment structure.
If owners want to dispute all or part of an invoice, they will be required to deliver a notice of non-payment within 14 days of receiving the proper invoice from the contractor. Any undisputed amounts will have to be paid within the 28-day period.
Contractors must also deliver a notice of non-payment to affected subcontractors if they do not intend to pay the full amount of the invoice. If an owner pays all or a part of the contractor’s invoice, the contractor will need to deliver the notice of non-payment to that subcontractor within 7 days of receiving the payment from the owner. If the owner does not pay any part of the contractor’s proper invoice, the contractor has 35 days after delivering its proper invoice to deliver the notice of non-payment to its subcontractors.
If a party fails to pay when due under the prompt payment rules, statutory interest will accrue and become due on the payment.
The prompt payment provisions will apply to payments made under contracts entered into on or after the date the amendments come into force on October 1, 2019.
The Construction Act introduced adjudication as a quick, inquisitorial dispute resolution mechanism for payment-related disputes and any other disputes agreed to by the parties. An adjudication must begin prior to completion of the contract or subcontract unless the parties agree otherwise.
Any party to a contract or subcontract may refer a dispute to adjudication by giving written notice of adjudication. There are certain rules and procedures that govern the selection of an adjudicator and the exchange of documents between parties. ADR Chambers has been selected by the Ministry of the Attorney General of Ontario to act as the Authorized Nominating Authority to oversee the adjudication process.
The above-mentioned amendment will have a profound effect on construction disputes. Due to the fact that they are being tried for the first time, there will be many unknowns procedurally and legally which parties have to deal with.
The material in this article is for informational purposes only and not for the purpose of providing legal advice.