October 7, 2019
Prompt payment and adjudication:
A national movement
BY ROB KENNALEY
We have previously written about the prompt payment and adjudication regimes that are scheduled to come into force in Ontario on Oct. 1, 2019 under the new Construction Act. These will apply in relation to services or materials supplied under construction contracts procured or entered into after that date. As will be discussed below, the Ontario provisions are being treated as a test case throughout much of the country, since many other jurisdictions are considering their own form of such legislation.The Ontario prompt payment provisions provide that once a “proper invoice” is given to a business owner, the owner must either give a “notice of non-payment” to dispute the invoice within 14 days, or pay the invoice within 28 days. Thereafter, each payer in the construction pyramid will also have to either pay, or give notice of non-payment, to those immediately beneath them. Where an unpaid party receives a notice that it is not going to be paid, it can (and sometimes must) send a dispute over the unpaid amount to “adjudication.”
It is anticipated the prompt payment and notice requirements under the legislation will be strictly enforced. Also, the new statutory payment requirements are inconsistent with every standard form Canadian Construction Documents Committee and Canadian Construction Association contract in Canada. They will almost certainly be different from whatever other form of agreement parties to construction contracts in Ontario may now be using. It is vitally important that anyone who supplies or pays for construction services or materials in Ontario understand the new obligations. In addition, if there was ever a time to review and revise the forms of contract or subcontract such participants use, now is that time. Bringing your form of contract or subcontract in line with the new provisions will ensure everyone understands the payment requirements, and will help ensure that confusion or disputes do not arise going forward.
The adjudication provisions will also bring substantial and far-reaching changes to dispute resolution in both Ontario and jurisdictions that adopt the regime going forward. In Ontario, virtually any construction dispute can be submitted to adjudication. Thereafter, a binding decision will be made as quickly as 46 days or less. If a party loses at adjudication, there are only small rights of appeal. Generally, if you lose, you must abide by the decision. Your only recourse will be to commence litigation proceedings in the usual and ordinary course. If you are able to convince a court that you were right at first instance, the court will be able to issue an order which ‘undoes’ (for lack of a better term) what happened at the adjudication. Obtaining such an order, however, might take several years and tens of thousands (if not hundreds of thousands) of dollars. In the meantime, you will have to live with the decision made.
Timelines applicable to the adjudication process are short, and we anticipate they will be strictly enforced. Everyone who participates in construction in Ontario should understand their obligations. They will also have to alter the way they do things on a day-to-day basis, both in the office and in the field. Managing paper and issues on a real-time basis, to have a file prepared in the event a potential dispute becomes real, will be important. Parties will have to put themselves in the best possible position to present their side of a dispute, with persuasive evidence sufficient to support their arguments, in a very short period of time.
Significantly in Ontario, the Construction Act allows parties to a construction contract or subcontract to agree on certain procedural aspects of the adjudication process. Accordingly, parties to contracts and subcontracts should consider including terms and conditions in this regard in contractual agreements. In this way, they can better control the process, in the event it is required. This, again, leads us to say now is the time, if ever, to revisit the contracts and subcontracts you have been using in Ontario.
As above, prompt payment and adjudication regimes are in various stages of implementation and consideration in other jurisdictions in Canada. In Nova Scotia, the Builders’ Lien Act has been renamed the Builders’ Lien and Prompt Payment Act, and in Saskatchewan, new legislation containing a prompt payment and adjudication regime received royal assent in May, 2019. In both New Brunswick and Manitoba, new legislation similar to Ontario’s has been proposed, while such procedures are under review in British Columbia. In Alberta, the provincial government has begun inserting prompt payment requirements into its own various infrastructure contracts. At the federal level, the Federal Prompt Payment for Construction Work Act received royal assent in June, 2019, but has yet to come into force. In Quebec, pilot projects will explore construction law reforms for public contracts and subcontracts, of which the exploration of prompt payment and adjudication regimes will form a part.
Wherever you may be in Canada, prompt payment and adjudication (in some form) is either on the way or under consideration. Participants in construction need to be aware that these changes will mark a fundamental shift in both how payments are to be made and processed, and how construction disputes are to be addressed. If participants prepare themselves (and their contractual relationships) to manage and take advantage of the changes, the potential benefits and savings may be great in both the short and long run. On the other hand, if participants are not so prepared, they run the risk of missing payment deadlines, missing notice periods and being ill-prepared for adjudication — such that the impact of the new regimes will be harsh, if not severe. In the end, the changes are coming. Ignoring them should not be an option. Preparing for them is the best possible strategy.
Robert Kennaley practices construction law in Toronto and Simcoe, Ont. He speaks and writes on construction law issues and can be reached for comment at 416-700-4142 or at rjk@kennaley.ca. This material is for information purposes and is not intended to provide legal advice. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.