New Construction Act receives Royal Assent: Industry awaits proclamation, regulations

Following Royal Assent just before Christmas, Ontario’s new Construction Act will radically reform industry practices, including payment terms and dispute resolution.

But for the first few months this year, it will be business as usual because most of the key legislative provisions still need regulatory implementation and proclamation, and there are many details yet to be resolved. The legislation also includes grandfathering provisions, meaning that existing projects and lien rights will continue as before for existing and recently completed projects.

Bill 142, the Construction Lien Amendment Act, 2017 (Ontario), came into force after years of lobbying by trade contractors seeking prompt payment legislation. After push-back three years ago when public agencies and owners stalled a private members’ bill, the provincial government contracted with lawyers Bruce Reynolds and Sharon Vogel to conduct a comprehensive legislative review.

Reynolds says almost all of his proposed changes were incorporated in the revised bill, including the its new name, The Construction Act.

Key changes include:

• Providing more time for contractors and subcontractors to resolve their disputes outside of court by extending timelines to file liens and start court actions from 90 days to 150 days;
• Ensuring contractors and subcontractors know when to expect full payment by requiring holdback funds to be paid as soon as the deadline to file liens passes;
• Protecting subcontractors and workers if the general contractor files for bankruptcy by requiring surety bonding on public sector projects above a certain amount;
• Allowing condominium unit owners to remove liens from their unit in relation to common elements (e.g., corridors, lobbies, etc.); and
• Referring construction lien claims under $25,000 to small claims court.

Edward Betts, a partner with Gowling WLG, says in a commentary that the key legislative provisions yet to be proclaimed include “prompt payment, adjudication, changes in the lien preservation and perfection periods, mandatory payment of holdback, trust accounting rules and so on.”

He writes that it is likely that the balance of the act provisions “will be proclaimed fairly early into 2018.”

“For prompt payment and adjudication these will be in force when proclaimed after finalizing the related regulations and multiple prescribed forms,” Betts writes. “In addition, the adjudication nominating authority needs to be set up and then adjudicators certified before the prompt payment and adjudication can work, so we may see these provisions proclaimed but then delayed further until all that administration is taken care of.

“Various groups have asked for a long transition and education period,” he writes. “So we really do not know the timing yet unfortunately. The Attorney General’s Office has stated that it will make a clarifying announcement on timing in January 2018.”
Betts writes that the Construction Act includes:

• Long overdue updates to 35-year-old legislation that includes payment protection throughout the construction pyramid;
• Contractors and sub-contracts now have security and assurance regarding timelines for payment;
• Mandatory performance and payment bonds on publicly funded projects over a threshold contract price (similar to the Miller Act in the United States);
• The adjudication process will now provide an opportunity for resolution of construction disputes without disruption of project schedule and will assist in avoiding costly legal battles;
• No-exceptions rule to hold-back release deadlines means a no-exceptions rule to when contractors and sub-contractors get paid; and
• Mandatory prompt payment for sub-trades.

However, there are many challenges to be resolved in the regulations and scheduling, including ensuring there are an adequate supply of qualified adjudicators. As well, the legislation provides “contracting out” opportunities for some key provisions, which may weaken the effectiveness of the Prompt Payment requirements, but which will protect general contractors from being caught between a rock and a hard place in situations where they truly haven’t been paid by the owners. (Conversely, however, sub-trades will be able to walk off the job if they don’t receive their payments on schedule.)

As an example of the issues yet to be resolved, the previous Construction Lien Act includes wording that requires Certificates of Substantial Performance to be published in a “Construction Trade Newspaper”, further defined to be a daily publication – which effectively requires these notices to be published only in the Daily Commercial News (DCN), effectively granting that publication a legislative monopoly.

“References in the act to publication in a construction trade newspaper are replaced with requirements to publish in the manner set out in the regulations,” the Construction Act’s legislative synopsis says. But we still need to wait for the new regulations to see how things will change, if at all.