This week I had the pleasure of attending the Toronto Construction Association’s seminar on Bill 142 – Amendments to the Construction Lien Act (Legislative Assembly of Ontario).
The seminar was geared to construction professionals to outline the major changes to the current Construction Lien Act. “It has not been amended since 1983, and how will these changes affect their day to day transactions relating to construction liens.
Why Did I attend The Seminar?
I attended this seminar to ensure that I understood the Construction trades’ points of interest in the ‘New and improved’ Act. I also wanted to write to simply outline some notable changes made to the Construction Lien Act.
The amendments come as a direct result of the report under the title “Striking the Balance: Expert Review of Ontario’s Construction Lien Act”. It was prepared by the Attorney General’s Office and the Ministry of Economic Development, Employment and Infrastructure.
The scope of the report was very broad. It had input from a large variety of stakeholders in the Ontario Construction industry. It includes lawyers, General Contractors, subcontractors, owners, municipalities, insurance providers, and the OREA, to name a few.
From my initial perusal of the Construction Lien Act, there are a few significant changes to the Act, along with non-consequential and housekeeping amendments.
Amendments To The Construction Lien Act
DEFINITIONS
- The definition of “price” has been changed to include any direct costs incurred because of the extension of the duration of the supply of the services or materials to the improvement. These costs are costs that the contractor or subcontractor would not be responsible for.
- The definition of “subcontractor” has been changed to include a joint venture entered for the purposes of the improvements.
- The “improvement” definition has been expanded to include any repair intended to extend the normal economic life of the land or building or to improve the value or productivity of the land, building or structure.
- The new ‘improvement’ definition does not include maintenance work performed to prevent normal deterioration or works to maintain the normal functional state of land, a building or a structure.
- The substantial completion thresholds have increased to reflect current values and the time limits for preserving and perfecting liens have been extended.
- The holdback regime has been amended to include other forms of holdback other than cash including letters of credit, or surety bonds. Holdbacks are now subject to mandatory release as the wording “may release” is being changed to “shall release”.
NEW PART I
A new Part I of the Act entitled “Prompt Payment” includes sections on proper invoicing to be enforced by the Construction Lien Act. In my opinion, this part could avoid possible confusion between the parties for prices or additional costs due to the contractor or subcontractor.
It prevents similar defenses later in the process if it is adjudicated or litigated. The section provides a simple timeline for invoicing to avoid strategics, miscommunication, or misinterpretation of the Act.
In the event a dispute, the owner may provide a Notice of Non-payment within 14 days of receiving the proper invoice form.
This is intended to alleviate the black hole of uncertainty for both owners and builders when it comes to demanding payment or providing payment of the invoices.
This new Part 1 also provides very detailed and specific statutory deadlines to contractors on paying subcontractors.
The deadlines are also for providing notice to the respective parties regarding full payments, non-payment, and partial payments.
Any disputes on invoices and payments will have a form based notice system that needs to be adhered to for the issues to be adjudicated between the parties.
These new sections are enacted to provide an out of court remedy for all parties affected which are welcome for parties that would have multiple invoices outstanding on various projects or ventures.
One disadvantage of these provisions is the possibility of parties misinterpreting the clauses and missing a deadline thereby putting their claim or dispute in jeopardy.
Contractors and owners were concerned with how these mandatory deadlines will work on a day to day basis. They were also concerned how their accounting and contractual processes will change.
The prompt payment clauses are not set to be grandfathered in. It will apply to all payments made after the proclamation of the Act.
NEW PART II
Another significant amendment to the Act is the new Part 2 wherein the Act provides a construction dispute interim adjudication process for parties to settle their outstanding disputes under the Act.
When a party provides notice of nonpayment or partial payment of an invoice, in a prescribed form, within the stated deadlines, the parties shall be referred to the Adjudication process outlined in Part II. The appointed Adjudicators can hear the following issues by either of the parties or the subcontractor of a contract:
- The valuation of services or materials provided under the contract;
- Payment under the contract, including a change order, whether approved or not or a
proposed change order; - Disputes that are the subject of a notice of non-payments;
- Amounts retained under a trust set off or under subsection a lien set-off;
- Non-payment of holdback under section 27.1.
- Any other matter that the parties to the adjudication agree to.
In addition, the parties have the power to set their own adjudication procedures within their contract. However, if this is silent in the contract the Act and regulations will set out the proper procedure.
The Construction Lien Act also stipulates the powers of the adjudicator as well as providing the adjudicator the option of conducting an on-site inspection with the consent of the owner if they are not a party or any other person that can legally exclude entry to the premises.
The adjudication binds the parties and can be enforced by the Court. After the adjudication, the decision must be delivered with written reasons. The decision is appealable at Superior Court within 30 days.
After the adjudication, the decision must be delivered with written reasons and the decision is appealable at Superior Court within 30 days.
Any payment to be made pursuant to the decision shall be made by either party within 10 days of the decision. If the payment is not made by the owner to the contractor, the contractor will have the statutory right to stop work on the project.
It is important to note that the Interim adjudication method is intended to be quick and easy ways to resolve a dispute while the project continues. It does not waive the lien rights of the contractor or subcontractor.
WHAT STAYS THE SAME?
Several items remain in the Act like the priority of claims. Alternative Dispute Resolution remains voluntary, and there is no change to the 2-year expiration date on liens.
There is also no change to the 10% quantum amount of a hold back as well as no change to the lot by lot exclusion.
After reviewing the changes in detail with construction professionals, I am convinced that the new Construction Lien Act will accomplish the mandates of modernization and provide great tools to professions with the new Prompt Payment and adjudication procedures.
The processes and procedures will need to be clearly implemented in the corresponding regulations and prescribed forms to ensure that Contractors, subcontractors, and owners do not jeopardize their lien rights and payment obligations pursuant to their contracts.
It will be interesting to see how all the stakeholders adapt and adjust their practices to ensure their compliance with the Statute.
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