October 26, 2017
AMO WatchFile Guest Column

Neil Abbott
Partner, Gowling WLG

The new Construction Act (currently Bill 142) will affect all construction projects, big and small, P3 and home renovations when it comes into force, likely in spring 2018. For municipal governments, the Bill will add new administrative responsibilities to meet new requirements around prompt payment and a mandatory adjudication process.

Prompt Payment & Liens

The amendment introduces a mandatory Prompt Payment Regime whereby Payors will have only 28 days to pay contractors after delivery of a proper invoice. While parties will be free to set milestones for triggering the invoice delivery, the payment timelines cannot be changed. The Payee will then have seven days to pay its subtrades. The Payor can deliver a notice of non-payment within 14 days of receiving an invoice to dispute any item, but the balance not in dispute must be paid. The obvious impact to this will be greater emphasis on document management and payment process.  The good news is that 49 U.S. States have prompt payment so there are plenty of models for payment compliance to draw from.

The new Act will also lengthen the lien period to 60 days, while keeping the 45-day window for holdback release. Holdback will also be subject to set off provided proper notice is provided. Otherwise, holdback release will be mandatory. Holdback will remain at 10% of the value of the improvement.  Capital repairs are defined and can be lienable.

Other procedural rules include a move from lien specific trial procedure to regular rules including the prosecution of liens in small claims court. These changes will modernize the Act and speed up the administration of Justice.

Mandatory Adjudication

Subject to an important exemption for Municipalities in P3/Alternate Finance Projects (AFP) described below, the new Act will introduce early dispute resolution into projects in the form of mandatory adjudication. The details of adjudication will be worked out in the Regulations, including the creation of a body to appoint adjudicators. Adjudication can be requested by a contractor on short notice, if there is a dispute over monetary claims including set offs and deductions. Adjudication applies to all projects including P3s. The Adjudicator must render a written decision within weeks and it is binding, subject to appeal at the end of the project. Failure to comply with a decision may entitle the successful party to suspend work. As with Prompt Payment, it will be critical to manage relevant paperwork and be able to swiftly respond to a claim. The good news is that this system has been successfully used in the UK for decades and firms like ours have extensive experience in the process.

When do these new rules take effect?

Adjudication will take effect for contracts entered into after the Regulations come into force. Prompt payment will apply to contracts entered into after the Act comes into force. The changes to the timelines for a lien and other procedural matters will apply retroactively to contracts in existence at the time of enactment.

The final world

The changes in the Act are, in many respects, welcome to municipalities in the P3/AFP industry, especially by bringing P3/AFP projects out of the shadows of the Act. Most important for municipalities is their exemption from prompt payment and adjudication in P3/AFP projects where they are the true owner. In those circumstances, the Project Co. will be the Payor.

Notwithstanding this exemption for Municipalities for P3/AFP projects, efficient, practical and comprehensive project management at the municipal level will now not only be a best practice but necessary to comply with the law.

To learn more, you can read the Bill; and a longer version of this article with more details.

Neil Abbott is a partner at Gowling WLG in Toronto and is a certified as a specialist in Construction Law by the Law Society of Upper Canada.