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Legal Notes: Construction Act tightens payment and dispute timelines

John Bleasby
Legal Notes: Construction Act tightens payment and dispute timelines

 

Ontario’s new Construction Act introduces several important changes affecting owners, contractors and consultants. The Daily Commercial News begins a multi-part review of the Act, guided by Jill Snelgrove, a lawyer specialising in construction law with Pallett Valo LLP.

Prompt and consistent payment is the lifeblood of all those involved in construction projects. Disputes and delays are costly. Ontario’s new Construction Act recognises this and seeks to tighten and define payment timelines.

Fundamental elements of the Act may already be familiar, specifically the 28-day deadline for owners to pay an invoice and 14-day window for them to dispute that invoice. These deadlines are triggered by the contractor “giving” a “proper invoice” to the owner.

Under the Act, a proper invoice is an invoice, usually provided monthly by a party who has a contract with the owner.

The 28/14-day timelines triggered by the “giving” of the proper invoice are tight and represent an important change.

“Owners and their consultants may now be concerned that 14-days is not enough time to properly assess the work covered by the proper invoice in order to approve payment,” says Snelgrove.

In addition, owners are prohibited by the Act from making prior approval or pre-certification of an amount a condition precedent to the giving of a proper invoice in order to avoid triggering the timeline countdown. Under the Act, the clock starts ticking after a proper invoice is submitted, regardless of whether the parties agree on an amount. Revisions to proper invoices can be made after delivery, however any revisions must carry the same date as the original invoice.

There may be ways around this time crunch. To give owners and consultants enough time to review the invoice in detail, owners may include contract provisions requiring pre-invoicing meetings or ‘draft’ invoices in advance of the proper invoice date.

Snelgrove also points out that, “In order to make a prompt assessment of payment, owners may opt to stipulate in their contracts that certain information must be submitted with the proper invoice.” For example, on a time and material contract, the owner may request the inclusion of all-time sheets and material invoices supporting the amounts claimed in the proper invoice, otherwise the owner may not consider the invoice “Proper”. This requirement for additional information might assist the owner in being able to make prompt payment decisions but it can add a significant burden on the contractor. Contractors need to be aware of any invoicing provisions in their agreements with owners, plus understand what terms are required under the Act versus what can be negotiated.

The other key consideration is what is meant by the “giving” of the invoice by the contractor to the owner. After all, that’s the event that starts the clock.

Under the Rules of Court and the Act, “giving” includes delivery in person or by certified or registered mail. If given by certified or registered mail, the recipient will be deemed to have received the proper invoice on the fifth day following the date of dispatch. Considering a proper invoice is usually given each month, personal service or delivery by certified or registered mail can be a waste of time and costly. Snelgrove therefore suggests email as the best delivery choice. However, emailing a proper invoice is only valid if both parties agree in advance.

Meanwhile, subcontractors should note that the “giving” of a proper invoice by the contractor to the owner starts the clock for the subcontractor’s right to payment. To safeguard their interests, subcontractors are advised to include provisions in their agreements requiring the contractor to notify them when a proper invoice has been submitted to the owner. In fact, the contractor is required to provide that confirmation if requested by the subcontractor.

In our next Legal Notes column: What happens if the invoice is not paid on time, or is disputed?

 

John Bleasby is a Coldwater, Ont. based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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