Prompt Payment Regime Takes Effect For Construction Projects

Sabrina Saltmarsh, B.A. (Hons), J.D.Arbitration, Condo Construction, Construction Equipment & Machinery, Construction Litigation, Cottage Litigation, Heavy Machinery Disputes, Mining, Infrastructure and Projects, Real Estate | Developers, Real Estate Litigation, Recreational Property, Recreational Property Litigation0 Comments

A major shift has been underway in Ontario since the legislature ushered in reforms under Bill 142, the Construction Lien Amendment Act, 2017, S.O. 2017, c. 24., perhaps none of which is more significant than the prompt payment regime which took effect on October 1, 2019.

Changes To Lien Period: Effective July 1, 2018

Changes to the previous legislation (The Construction Lien Act) have come into effect in phases, with the first set of changes having taken effect in July of last year. We are now in the midst of transition rules which apply depending on the commencement date of a construction project to determine the applicable lien period which changed from 45 days to 60 days for prime construction contracts entered into after July 1, 2018. There were several additional notable changes which took effect as of July 1, 2018, including the extension of the period to perfect a lien (start a court proceeding arising from a lien registration) from 45 days to 90 days.

An additional significant amendment which took effect on July 1, 2018 involved reforms to the release of statutory holdbacks. Under the new Construction Act, R.S.O. 1990 c. C. 30 (the Act), owners are now obligated to release statutory holdback funds once the lien period has expired, absent publication of a notice of non-payment issued in the prescribed form within 40 days of the publication of the certificate of substantial performance. The change means that a notice of non-payment must be published in advance of the expiry of the lien period, thus allowing affected sub-contractors to exercise their lien rights.

Prompt Payment Regime: Effective October 1, 2019

The most transformational change under Bill 142 is the prompt payment regime, which has taken effect as of October 1, 2019, with it’s own transition rules. Prompt payment rules impose a mandatory payment framework within which owners, general contractors, and contractors must operate, to ensure subcontractors (and sub-subcontractors) are paid promptly for their work. Absent prompt payment, construction contractors now have a right to move for immediate interim adjudication of any payment dispute. If a failure to pay continues in the face of an adjudicative ruling, unpaid construction contractors are entitled to apply interest on unpaid invoices and cease work until the order is complied with. The prompt payment regime will apply to any prime contracts entered into after October 1, 2019.

Below is a summary of some of the critical prompt payment deadlines:

Timelines For Prompt Payment
  • Contractors and subcontractors are required to submit a proper invoice within 30 days;
  • Owners are required to pay general contractors within 28 days of an invoice being submitted
  • General contractors must pay subcontractors within 7 days of receiving payment from the owner, subcontractors must pay their subcontractors within 7 days of receiving payment from higher up in the construction pyramid, and so on.
Proper Invoices

A proper invoice is defined under the Act and must include certain critical information including: the contractors name and address; the date of the proper invoice and the period during which services or materials were supplied; a description and quantity of the material and services supplied, identify the contract under which said materials and services were supplied; the amount payable; payment terms; and payment contact and instructions.

Timelines For Disputes Under Prompt Payment

In the event that an owner intends to dispute an invoice:

  • The owner must provide written notice of non-payment within 14 days of receiving the invoice, which sets out the reason for non-payment, any undisputed amount must be paid. If the timeline is not met, the owner is required to pay the invoice in full and can raise the dispute during the next payment cycle.
  • If a general contractor (or a sub-trade) has not been paid, and does not intend to pay subcontractors out of their own pocket, they must commence adjudication against the owner within 14 days and provide notice to subcontractors within 7 days. The effect should be that everyone in the construction chain will know rather quickly if they will be paid.
  • Adjudication begins with a notice of adjudication form, whereby the general contractor (or a sub-trade) chooses an adjudicator from a roster supplied by the Authorized Nomination Authority. This triggers a whole host of new timelines within which to have the dispute resolved ultimately within 39 or 46 days.
What Kind Of Construction Projects Prompt Payment Applies To

The legislative intention behind the new prompt payment regime is to provide protection to sub-trades involved in any type of construction contract in Ontario, from minor residential renovations, to the largest of projects. Prompt payment should help to avoid project delays and costly and protracted lien litigation. If you’re involved in, or are entering into, a construction project as an owner, general contractor, or a sub trade, it will be important to understand your rights and obligations under the new Construction Act, including those in effect as of October 1, 2019 related to the prompt payment regime.

Affected Entities

All construction project participants, including: owners; builders; developers; general contractors; sub-contractors; project financiers; materials suppliers; construction equipment suppliers, etc.

How We Can Help

We can help your business develop prompt payment compliant policies and contracts; navigate through a prompt payment dispute; understand which legislation governs your contract in accordance with applicable transition rules; address a lien dispute.

Contact us for an initial consultation regarding your construction law matter.

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About the Author

Sabrina Saltmarsh, B.A. (Hons), J.D.

Practitioner in a broad range of business and civil litigation matters including commercial, real estate and condo disputes. Experienced at all levels of Ontario Courts. Bio | Contact

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