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The new Construction Act introduced major changes in two general tranches:
- Changes generally relating to “lien modernization” and transition rules (in force July 1, 2018)
- Changes relating to prompt payment and adjudication (in force October 1, 2019)
The new Construction Act is dramatically different than the former Construction Lien Act, although the former act may still apply to your ongoing or pending dispute, depending on the project start date and timing.
We previously reviewed some of the changes in our articles “The New Construction Act: Follow-up on Changes to the Construction Lien Act”, and “4 Key Changes to the Construction Lien Act”.
Review of July 1, 2018 Changes
The July 1, 2018 changes were significant, touching on the fundamentals of construction lien claims, timing issues, and holdback rules.
Some of the key changes include:
- The deadline to register / preserve a Claim for Lien was extended from 45 days to 60 days.
- The deadline to “perfect” a lien claim by commencing a legal action was extended from 45 days after the lien claim was preserved, to 90 days.
- The lien holdback amounts may be able to be released annually or on a phased-basis, depending on the contract between the parties.
- The release of holdbacks by the property owner is now mandatory, unless the payer publishes what amounts it refuses to pay.
- Termination of a contract is formally recognized as one of the trigger dates to be considered in determining the applicable construction lien deadline. Further, where a contract is terminated, a notice of termination is required to be published in a form prescribed by the Construction Act regulations.
- The maximum amount of costs required to be posted with the court to vacate or “bond off” the lien increased from $50,000.00 to $250,000.00 (25% of the lien value, up to a maximum of $250,000.00).
- As of October 1, 2019, construction liens for municipal projects will be required to be served rather than registered on title, similar to projects owned by the Provincial Crown.
- Landlords who provide inducements or incentives to tenants under commercial leases have exposure to construction lien claims, up to a maximum of 10% of the value of the inducement.
The October 1, 2019 Amendments
The second tranche of major Construction Act changes came into force as of October 1, 2019. These generally relate to the rules for “prompt payment” and set up new adjudication (dispute) mechanisms. The prompt payment and adjudication themes are related.
The prompt payment changes attempt to ensure parties in the construction pyramid are paid in a timely manner after issuing a “proper invoice” as defined by the Act. This stemmed partly from the ongoing issue that plagues construction companies: getting paid on time. Continuously delayed payments have a ripple effect in the overall construction economy and so a public policy interest propelled the prompt payment changes.
Some of the new prompt payment rules are as follows:
- Owners and general contractors must agree to a deadline for the submission of invoices. The contractor will be required to submit invoices to the owner on a monthly basis if they cannot or do not agree to a different timeline.
- Owners are required to pay their general contractors within 28 days after receipt of an invoice from the general contractor.
- General contractors must pay subcontractors within 7 days after receiving payment from the property owner.
- Subcontractors must pay any sub-subcontractors within 7 days of receiving payment from the party with whom they have contractual privity.
- Contractors and subcontractors have a right to charge mandatory interest on late payments beginning when the amount is due. Interest is set at the prejudgment rate determined under the Courts of Justice Act or the rate set out in the contract or subcontract, whichever is higher.
However, if there is a dispute about payment amounts, invoices or the quality of work, the following general process applies:
- Owners are permitted to send a notice of non-payment to the contractor within 14 days of receiving the invoice from the contractor.
- Contractors are permitted to send a notice of non-payment to the sub-contractor within 7 days of receiving the notice of non-payment from the owner.
- Sub-contractors are permitted to send a notice of non-payment to other sub-subcontractors they hire within 7 days.
While the prompt payment rules do not necessarily mean that parties will always get paid faster, they at least set out a process to be followed. However, a cash strapped owner or general contractor won’t be paying any invoices regardless, which will trigger liens and related litigation. As such, a new adjudication process was introduced by the Construction Act.
New Adjudication Process
The October 2019 amendments provide parties with an alternative to court to resolve invoice and payment disputes on an interim basis before the contract is terminated or abandoned. The idea behind the new adjudication process is to provide a more streamlined resolution mechanism for payment disputes, and any other disputes that are agreed to be resolved by the parties pursuant to their contract or on consent. This policy shift encourages the more timely resolution of disputes and is designed to speed up the cash flow down the construction pyramid.
As a first principle, the adjudication must commence before the contract is complete, unless the parties agree otherwise in their contract.
Any party to a contract or subcontract may initiate the adjudication process by sending a written notice of adjudication to the other party, and by sending a copy to the Authorized Nominating Authority that same day. This resolution process utilizes an expert-adjudicator that can decide disputes referred to it.
After an adjudicator is appointed, the initiating party must provide related documents and send a copy of the notice to the adjudicator and responding party in 5 days. The responding party then has an opportunity to submit a response.
Barring agreement to extend the timeline, the adjudication will be determined within 46 days of the adjudication being commenced. Once the adjudicator has made a determination, any party required to make a payment must do so within 10 days.
Once the adjudication is complete, either party can bring an application to the court for an order enforcing the decision, which can be enforced by writ of execution or garnishment.
Additionally, if an adjudicator’s decision is not obeyed, the party expecting payment is entitled to suspend work under the contract or terminate that contract.
Review of Transitional Rules
Which version of the Construction Act applies to your matter: the old, or the new? The transitional rules are set out in s. 87.3 of the new Act.
The general principles are as follows:
The former Construction Lien Act will apply where:
- a contract for the improvement was entered into before July 1, 2018; or
- a “procurement process” (precisely defined in the new Construction Act) for the improvement was commenced before July 1, 2018 by the owner.
If neither of the above conditions is met, the new lien provisions will apply.
If a procurement process is not commenced until after October 1, 2019, or a contract that does not involve a procurement process is entered into after October 1, 2019, both the lien modernization provisions and the prompt payment and adjudication provisions will apply.
The fundamental point of the new Construction Act is that time matters.