Prompt Payment is not working the way it should be in Ontario and the approach needs to change.
That was the message from Dan Leduc, partner at Soloway Wright LLP, who worked for Prompt Payment Ontario and was instrumental in bringing legislation into the province. He recently spoke during a session at the Canadian Institute of Steel’s Construction’s conference in Toronto.
“Do you know what the problems are for prompt payment? Can you explain to me why?” asked Leduc.
“Do you have a mirror? It’s this mindset that you’ve had for the last 30 or 40 years that it’s OK to get paid on 70-day terms. You haven’t adjusted your corporate culture and it’s not impolite to ask for payment after the due date. If on day 35 you’re not paid, day 36 you’re picking up a phone. You have to challenge, you have to chase your money.”
The prompt payment regime has been in place for a few years now in Ontario, he pointed out.
“My clients did see an initial bump…when it came in,” Leduc said. “They went from 70 days down to 50 or 45 but then COVID came in and interrupted all that. But now we’re out of COVID and they’re still looking at 50 to 70 day terms on payment, so it’s not doing what it needs to do.”
He had a few suggestions for improving how things work, including adjudication.
“There is a real hesitancy to trigger an adjudication,” he said. “It’s another tool that’s been given to you.”
He said the cost is a deterrent for some but that shouldn’t be the case.
“What if there is no notice of non-payment?” asked Leduc. “This is the leverage that you want…It’s got to be sent out on day 14…if it’s not, my argument is the language in the prompt payment regime is mandatory. If you didn’t do that, if you didn’t give me notice, you’ve got to pay.
“If you don’t have a notice of non-payment it’s even easier to get an adjudication because you can say they’re supposed to give you the 14 day notice.”
Pursuing interest is another option now that rates are higher than they have been in the last 10 to 15 years.
“We’re all being penalized because of increases in interest rates but on the upside it also means many of your contracts are carrying a higher rate of interest,” Leduc pointed out. “If you are tied to a CCA I or a CCDC 2 contract the interest rate is typically two points above prime for the first 60 days, four points above prime after that. We’re talking eight or nine points now. I do have clients that have these amazing algorithms that pump in their receivables and calculate the interest based on prime and they just have a running list and you pursue that.”
He also said it is critical for project managers (PM) and middle managers to know how they’re getting paid on a project. At kick off meetings he’ll ask clients “how are we getting paid on this job?”
“(They say) ‘head office handles that,’” he stated. “‘No, you are the person that’s named on the proper invoice from the owner, you’re the guy, how are we getting paid?’ You would be surprised how many PMs and middle managers don’t know about the prompt payment regime.”
He even has some clients doing mockup or draft invoices to ensure the names, addresses and all the information is correct.
“Be proactive, ask, tell them I need to get paid on 35-day terms,” he said.
Don’t be afraid to give a notice.
“If somebody is late giving you a payment that’s actually a breach of contract,” he said.
“Remind them it’s your contract that you made me sign that says if there is a breach I can give a notice usually within 10 days and I haven’t been paid. Give the notice…If that doesn’t work do a draft notice of adjudication…do it incrementally. Ask some questions, find out what’s going on. But you have to give notice under your contract. It’s mandatory for you to seek recourse later on. The most difficult thing for you to do is give notice of breach to somebody you’re doing business with because we think it’s offensive.”
Attitudes in the industry need to change. He talked about all the work he and his fellow advocates did to get the prompt payment regime in place.
“So much effort to give you a scissor lift with prompt payment and you’re still using a wooden ladder,” he said. “You have to do something…because right now you’re doing nothing and they’re winning. They’re sitting on your money.”
For more on prompt payment with Leduc listen to The Construction Record podcast here.
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