Bill 142 – Introduction and Prompt Payment

Bill 142 – Introduction and Prompt Payment


Ted Betts Welcome everybody to Gowling WLG and welcome
back to those who are returning to our twice yearly construction law forum, here at Gowling
WLG. My name is Ted Betts. I’m a partner here at Gowling WLG and the
Canadian Head of the Infrastructure and Construction Group. The long 33 year wait to reform the Construction
Lien Act will soon be over. When the act first became law in 1983 it was
seen as a compromise, evolution of the former Mechanics Lien Act. Hasn’t been significantly modernized or
updated or revised since then. A lot of tinkering along the way. There’s been some efforts to make some major
changes to it but nothing terribly significant in all that time. Since then it’s become the statute many people
love to hate. In 2015 the Ontario government launched a
review of the Act which culminated in a report that was published last autumn called, “Striking
the Balance: Expert Review of Ontario’s Construction Lien Act”. With the release of that report the Province
announced it would bring forward legislation based on the report in spring of 2017, which
it did, on May 31 of this year. The Province of Ontario introduced some major
reforms and updating of the Construction Lien Act when it introduced Bill 142, The Construction
Lien Act Amendment Act. But you already knew that. That’s why you’re here. We are here to help guide you through the
many changes that are coming with this Act. There’s kind of three things that the Act,
the Amendment, set out to do. One, was to modernize the Act and you’ll see,
if you haven’t already, that there are a lot of small and technical changes throughout
the entire act. Lot of definitional changes. A lot of timeline changes. All of these need to be learned and re-learned
as we work through it. The second aim was to introduce prompt payment,
legislation and rules. And the third was to address expedited dispute
resolution processes which they’ve done with adjudication. So they certainly did all that they set out
to achieve and more so. The report recommended 100 changes, altogether,
and I think we can see that in the reflected, pretty much, I think 98 of the recommendations
were incorporated into the legislation. That’s going to be too much to tackle in any
one program, all of those technical changes and definitional changes. We’re going to try to capture most of the
significant ones and dive somewhat deeply into the two big regime changes, I’ll call
them, the introduction of prompt payment rules and adjudication. It’s going to take some time to get up to
speed for everybody in the industry with all of the little technical changes because there
were so many. We’ll highlight those. We have a number of presenters today. The program will work with a few Gowlings
lawyers summarizing different parts of the Act and the changes and then we will follow
with a panel discussion with some people from the industry who are going to have live and
breathe this a little bit more, day to day, and to talk about the impacts that they think
this will have on their organizations and the changes that they’re going to have to
start thinking about, internally, to adapt to the new law. That’s the program. We have up, it’s a little small here, but
we have set up a website, a page, a hub if you will, on our website with a whole bunch
of information to follow up. Just because there is so much to digest and
it’s a little hard in one program to absorb all of it. We will be distributing the slides to anybody
who signed up and registered for the event, so you’ll have that. This program will be, because there was such
demand as you can see we have a packed house tonight. We are filming it and we are going to put
that up on our website. That’ll be up probably, I think, in a week
or less. You’ll be able to revisit anything that you
missed and certainly we’ll be around afterwards to take your questions. We’ll have some time during the program today
for questions and we are coming out with a series of articles and there will be subsequent
events as well and I’ll highlight those at the end of the program, at bit. We will have some time for questions. There’s a lot that we want to cover so that
everybody gets the benefit of our highlights of the changes but we will take some questions
and certainly on the panel discussion we’ll have lots of time for questions. We will also, before the panel, just because
we have a longer program than we normally have for these things, we’ll take a little
short break before the panel gets going so everybody can check their phones, and in the
meantime, of course, everybody’s phones are completely turned off as your full attention
is going to be needed because of all the changes. So, thank you very much. We’ll get going with it now. We’ll start with, the first bit will be me,
and I’m going to be talking for the next, so there’s the layout of the program. I’ll start talking a little bit about prompt
payment. Then we’ll have Louis-Pierre talk about the
adjudication rules and the fast track dispute resolution mechanisms. Neil and Natasha will talk about some of the
technical changes that have been made to the Act dealing with and impacting lien rights,
holdback procedures and trusts. Natasha will come back up and talk about some
of the technical changes and, in particular, changes to the summary procedures. Then we’ll have our panel discussion. So, prompt payment. This whole thing starts with Bill 69, which
was a private member’s bill a couple of years ago, introduced in the Ontario legislature
that went as far as Second Reading. Fairly unusual for a private member’s bill. Bill 69 Ontario Prompt Payment Act, it was
an effort by a number of industry associations and, in particular, trade associations to
get cash moving quicker on projects. And get paid within a normal one month payment
cycle. It had a lot going for it. It had a lot of problems with it. It eventually died on the order paper but
when it died on the order paper, the Province committed to bringing some form of prompt
payment legislation back, but within the context of a wider review of the whole Act, which
is of course what they’ve done. Bill 142, which will likely become law in
the first quarter of 2018, maybe into the spring. I know the government is fully behind it and
they really want this passed. It’s got a broad consensus, both in the legislature
among all parties, and in the industry. They really want to get this through before
everybody gets distracted by an election, which will come next year. They do want this to be law, and I’m pretty
confident that it will unless there is some strange snap election, I don’t see any reason
for holding this up. We will have prompt payment rules in this
Province for construction projects. This will be mandatory so there are some parts
that you can structure in your contracts, and we’ll get into that in a second, but you
will not be able to contract out of the payment timelines for paying after you receive a proper
invoice. Basically, the new bottom line for construction
projects and improvements in Ontario, there will be for owners you’ll have 28 days to
pay from the receipt of a proper invoice and contractors will have 7 days to pay once they
get paid. We’ll go into the exceptions and the qualifications
to that in a second. But that’s the basic new regime. Owners must pay within 28 days of the receipt
of a proper invoice. That will be section 6.3 of the Act after
the amendments get passed. And by the way, the Construction Lien Act
will be no more. When the amendments get passed we will now
have a Construction Act. Which, I think, reflects the fact that the
Construction Lien Act dealt with a lot more than just lien and lien rights and it really
inculcates itself in the whole industry. We will have a Construction Act. In 6.3(1) is where we have our primary obligation
for 28 day payment. A couple of things to note right off the bat. It is subject to a notice of non-payment. In other words, if an owner is not paying
the full amount because it disputes an amount, you can still do that but there’s now a process
for that. You can’t just do it you have to follow the
process. There’s a notice requirement in 6.3(2) and
there’ll be a prescribed form of notice. Second, must be a proper invoice and we’ll
get into that in a minute and that’s going to be a key difference as well. There is a definition, fairly long definition,
to what is a proper invoice and if it is a proper invoice you’ll have 28 days to pay. If it’s not then you won’t. Let’s unpack some of that. Like I said, you can dispute an invoice but
you have to provide a written notice in prescribed form. That will be 6.3(2) when the amendment is
passed. Won’t read through that but there is, and
again, you’ll get slides. We’ll send the slides around so you’ll have
the text and of course, this is legislation or draft bill, so it is online if you ever
need to find a copy. A couple of notes from this. First, you don’t just get to decide at some
point later on that you want to dispute this. You need to be very on top of things. Much more on top of this because if you do
not want to pay, if you’re disputing a payment as an owner, and there are similar parallel
rules for contractors but they’re slightly different so we’ll get into that in a minute,
but you’ve got to give your notice of non-payment within 14 days of receipt of the proper invoice. It’s got to be in a prescribed form. We don’t have our forms yet. The government is working away at that. Presumably those will be all ready when the
legislation becomes law and, if not, there’s a lot of new forms, they may choose to hold
off the effectiveness of some of the parts of the Act until all of the regulations and
forms are passed. But there will be a prescribed form and a
prescribed method and manner of delivering the form in order to be proper. Then lastly, you can’t just decide, as sometimes
happens on a project, I just don’t want to pay this. I dispute it. I don’t think it’s right but I don’t want
to spend the time arguing or giving up my chance to argue something later on. Well, the legislation deliberately, sort of,
hones in on that part. In your notice you’re going to have to give
your reasons, fairly detailed reasons, and we’ll see how all of this plays out in the
courts at some point. There’s a lot of new law, new drafting here,
there’s no question a lot of this is going to get stress tested in the courts and on
projects, but one of the things I’ve picked up on is your notice has to provide detailing
all of the reasons for the non-payment. So query whether if you are delivering your
notice and you exclude something whether later on you would be precluded from bringing up
other arguments for your non-payment. You’re going to have to be diligent up front. There is also in here no express restrictions
on the reasons for non-payment. In the report, Striking the Balance, one of
the particular recommendations they made was that parties on a project should be allowed
to dispute payments and should be allowed to set-off for other payments that might be
owing. That’s not precluded here but, again, you’re
going to have specify that and put everything on the table when you’re giving your notice. Also, to the extent that you are not disputing
something, there is a mandatory obligation to pay the undisputed portion of the proper
invoice. All right, for contractors, you’ve got 7 days
after receiving payment. That will be in section 6.4(1). Couple of things to note here as well. It’s subject to non-payment as well so you
can dispute an invoice from a subcontractor and the key part, it’s a pay when paid clause. There’s some exceptions to this, some process,
we’ll get into that but you are not under an immediate obligation to pay if you haven’t
been paid as a contractor. Whether or not paid by the owner contractors
can dispute a subcontractor’s invoice but, again, you must provide the notice of your
dispute in the prescribed form. That’s in 6.4(6). Couple of things to note. This applies whether the owner has paid or
not. If you’re disputing a subcontractor’s invoice,
if the owner has paid you as a contractor, you’ve got to give the notice within 7 days
of receipt. In other words, if you don’t give the dispute
you’ve got to pay within 7 days. Or, you give a notice to your subcontractor
that you’re not paying because you’re disputing something in their invoice. If the owner has not paid you’ve got an option
here. You can give a notice of dispute within the
7 days after receipt of the owner’s notice. So the owner gives you a notice that they’re
not going to pay and once you receive that you have 7 days to provide notice to your
subcontractors that you’re not going to pay, or, if you never got that notice from your
owner you’ve got 35 days to dispute with your subcontractor after your own proper invoice. It gets pretty technical and if, then, this,
that, which is why we’re laying it out here and highlighting this. The bottom line is there is a process here
to dispute. If you’re deciding not to pay your subcontractor
you’re going to need to follow the process otherwise you will not be incompliance with
the Act. You could place extra interest or other remedies
that the subcontractors may have. Again, there is a prescribed form and a prescribed
manner of delivery. Like with the owner, you have to specify the
amount in dispute and the reasons and all of the reasons and you must pay the undisputed
portion of the invoice. Okay, if the owner is not paid by the owner,
this I already mentioned. If the owner has not paid you as a contractor,
you either have to dispute the non-payment, you’re looking at three different things that
you have to consider. Looking down the chain, at subcontractors,
you either have to dispute the subcontractor’s invoice or you have to pay within 35 days
after giving your proper invoice. At the same time, the first bit there, you
can dispute the non-payment. This is in 6.4(4) and to note, right, if you
are disputing you must dispute and commence adjudication process with the owner. If the owner has given you a notice of non-payment,
you just don’t have to accept that, you can start the adjudication process. But you must start the adjudication process. If you don’t then you owe your subcontractor
within 35 days of the submission of your own invoice to the owner. Okay, big question. What’s a proper invoice? This was a recommendation from the expert
review that timing should be attached, not just to a general invoice, but a proper invoice. They’ve tried to provide some definition in
6.1 about what this means. I won’t read through it all here but it’s
a lot of basic information so that we’re just kind of formalizing certain parts of this. This does not preclude you from including
in your invoice requirements other things. Deliverables, in clarifying what you need
to see. Maybe you’ve got a project financing and they
need certain documents to be delivered. That’s okay. There’s limits here. It’s not clear where the limits are going
to be until we’ve really stress tested this out there, about how far, and you have no
doubt that some owners are going to push this further than others. You’re going to have a requirement but there
is a rule that if you try to implement a pre-approval, or a pre-certification, into the invoicing
process, that won’t be allowed. It’s really just invoicing for the work. If the work’s done, they submit their invoice,
the certification process is going to run beside that. It’s not a condition for the submission of
an invoice. Big question, what happens if you don’t pay? Well, there’s now a statutory interest penalty,
if you will, starting from the moment that the payment was due. That will be a floating rate based on the
Courts of Justice Act. That’s at section 6.7. Okay, so there’s a lot of different owners. A lot of different projects. A lot of different contracts. A lot of different types of work. Does it apply to me? Prompt payment’s going to apply to every construction
project. Every improvement that they Act covers. That means all projects and improvements,
public sector or private sector, doesn’t matter. Conventional, normal construction projects,
P3 projects, doesn’t matter. New build, repair work, capital repair work,
all applies. It wouldn’t apply to maintenance work and
the Act does try to make a better distinction between ordinary repair and maintenance and
capital repair, not sure if it gets us all the way there, but there is ordinary maintenance,
cleaning, that’s not going to be attracted by the Act or the payment provisions, but
everything else will. All sizes of projects, with some debate about
carving out residential renovations, super huge projects, we don’t have that in there. All owners, contractors and subcontractors. Now, key part, and everybody is wondering,
“Is this going to affect my existing projects?” The answer is no. It’s only projects and contracts that get
signed on the day, or after the day, that this all becomes law. You’ve got a window until this gets passed
and then we’re into the prompt payment regime. There is no retroactive effective of the legislation. Can I exclude the payment provisions? As I said before that is a big no. Prompt payment regime is a mandatory legislative
regime for payment, however, you can structure your project the way you would normally structure
a project. If you typically would have milestones, for
example, or different phases in your project and that’s the trigger for a payment, you
can structure the triggers for payment and if you put that in your contract, it must
be in your contract, and once it’s in your contract then the payment regime and the timelines
take over. You’re not allowed to invoice us until you’ve
completed the whole laying of the foundation and then you can invoice us the first milestone
payment. So they do. They invoice you and then you’ve got 28 days
to pay. The Act is also introducing, and allowing,
phasing of projects so structuring your projects in different phases. Again, that will be allowed and payments tied
to that as a trigger, but your payment timelines will still apply once the proper invoice is
provided. That’s all we had for prompt payment. There’s a lot to digest and start to think
about. I know we’re going to talk about prompt payment
with our panel discussion and the impact and organizations in dealing with that. And then we will also be here afterwards if
you have any further questions. So with that, I’ll introduce my partner, LP
Gregoire, who is going to talk to us about adjudication.

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