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Legal Notes: Invoice disputes and non-payment, what happens?

John Bleasby
Legal Notes: Invoice disputes and non-payment, what happens?

 

The Daily Commercial News continues its series exploring key elements of Ontario’s new Construction Act, guided by Jill Snelgrove, a lawyer specializing in construction law with Pallett Valo LLP. In the first instalment, the “giving” of the “proper invoice” was explained. But what happens if the invoice is disputed?

 

Let’s assume you’ve done everything right. You delivered your detailed invoice to the owner for the work completed, starting the 28-day clock for payment required under the Act. Your sub-trades are counting on being paid within seven days after payment by the owner. However, 10 days after delivery, the owner notifies you that the invoice is being disputed.

Although owners are required to pay a contractor’s invoice within 28 days of receipt of the proper invoice, giving a ‘Notice of Non-Payment’, in the prescribed form, within 14 days is an exception to this rule, says Snelgrove. But how does this affect the payments to the subcontractors waiting for their payment?

Snelgrove explains that when an owner gives the contractor a Notice of Non-Payment, an exception to a contractor’s requirement to pay its subs may be triggered — under the Act, the contractor can give its own ‘Notice of Non-Payment if owner does not pay’, along with a copy of the owner’s notice, to the subcontractor. However, they must do so within seven days of receiving the owner’s notice.

Snelgrove explains that all notices are in a form prescribed by the Act and there are specific content requirements for each. “The ‘Notice of Non-Payment if owners do not pay’ must state that some or all of the amount payable to the subcontractor is not being paid due to non-payment by the owner and must specify the amount not being paid.” She adds that the notice includes an undertaking to refer the matter to adjudication no later than 21 days after giving the notice to the subcontractor.

Another exception to rule requiring a contractor to pay its subcontractors within seven days of receipt of payment from the owner is when a contractor disputes an invoice received from a subcontractor. This too is covered under the Act. “The contractor must give a ‘Notice of Non-Payment if dispute’, in the prescribed form, to its subcontractor no later than 35 days (28 plus seven) after giving the proper invoice to the owner,” Snelgrove explains.

“This Notice of Non-Payment must specify the amount that is not being paid and the reasons for non-payment.”

The exceptions to payment and notice requirements carry down the line and apply with the necessary modifications to the relationship between a subcontractor and its sub-subcontractors.

If payment is not made and a Notice of Non-Payment is not given in time, it is likely that the unpaid party will refer the matter to adjudication (as any party may do). “From a plain reading of the Act, in circumstances where payment has not been made and the required notice has not been given, the case should be clear and the adjudicator should make an order for payment,” says Snelgrove. “If an adjudicator orders payment and payment is not made within 10 days of that award, the unpaid party may stop work — a new and powerful provision of the Act that, if invoked, could cause serious repercussions to the project.” For that reason, the non-paying party may not risk adjudication and prefer to resolve the dispute.

The next instalment in this special Legal Notes series will cover the five things every contractor and subcontractor should know about adjudication.

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

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