Ontario’s Construction Lien Act reform legislation unveiled

TORONTO — Ontario Attorney General Yasir Naqvi introduced legislation this afternoon (May 31) that would, if passed, modernize the lien and holdback process, introduce rules to ensure Ontario construction workers get paid more promptly and make the dispute resolution process faster and simpler.

Key measures in reforms proposed for the Construction Lien Act include:

• Creating new prompt payment rules to give contractors and subcontractors certainty about when to expect payment

• Extending the timelines to file liens and start court actions from 90 days to 150 days, giving contractors and subcontractors time to resolve their disputes outside of court and avoid additional legal fees

• Requiring holdback funds to be paid as soon as the deadline to file liens has passed, so contractors and subcontractors know when to expect full payment.

• Creating an adjudication process to speed up dispute resolution and prevent disputes from delaying work on construction projects.

If passed, the legislative and regulatory changes would come into effect in 2018.

The legislation reflects measures recommended by construction law experts Bruce Reynolds and Sharon Vogel of Borden Ladner Gervais LLP, who led a review of the Construction Lien Act. The proposed legislation is based on the recommendations in the report and feedback from experts and industry groups.

A holdback fund requires all contractors and subcontractors to withhold 10 per cent of the cost of the services or materials supplied on a project. This helps to ensure that there is enough money to satisfy any lien claims that may arise, notes the provincial media statement issued May 31.

Other measures include:

• Clarifying the definition of "owner" to better reflect public projects that have multiple owners

• Extending timelines for contractors and subcontractors to file liens and start court actions from 90 days to 150 days to allow for more time to resolve disputes outside of court

• Requiring holdbacks to be paid once the timeline to file liens has passed. This would give contractors and subcontractors greater certainty about when the holdback will be paid, allowing them to plan and accept contracts for new work

• Requiring contractors and subcontractors to follow specific bookkeeping requirements to protect subcontractors in the event of bankruptcy

• Requiring surety bonding on public sector projects above a certain amount to protect subcontractors and workers if the general contractor files for bankruptcy

• Allowing condominium unit owners to remove liens from their unit in relation to common elements, such as corridors, lobbies, the garage and roof

• Providing for the referral of construction lien claims under $25,000 to the small claims court.

Between 2002 and 2013, the average collection period in construction went up from approximately 57 days to 71 days.

Under the proposed prompt payment system, changes, the owner and general contractor on a project would be able to agree to a deadline to submit an invoice. If they do not agree, they would be required to submit invoices on a monthly basis.

Once they receive an invoice, owners would be required to pay general contractors within 28 days. After they receive payment, general contractors would have to pay subcontractors within seven days. Subcontractors would be required to pay other subcontractors within seven days of receiving payment, and so on.

Parties would be free to agree to a timeline for the submission of invoices, before triggering the prompt payment timelines.

In cases where there is a dispute about the amount owed or the quality of the work, owners would be permitted to deliver a notice of non-payment within 14 days of receiving the invoice. Successive payers would be permitted to deliver a notice of non-payment within seven days. Any undisputed amounts must be paid.

Contractors and subcontractors would receive mandatory interest on late payments. They would also be able to suspend work on a project if the matter is heard by an adjudicator and the payer does not comply with the decision.