Ontario has recently conducted an extensive review of its Construction Lien Act, which generated a number of recommendations for updating and modernizing the statute. The Ontario efforts left many in Manitoba wondering when our own lien legislation would be reviewed and modernized.
Fortunately, it appears the wait may not be as long as initially feared: with a lot less fanfare, the Manitoba Law Reform Commission has confirmed that it plans to undertake a review of The Builders’ Liens Act and the practical realities experienced in the construction industry in order to make recommendations for the improvement, modernization and clarification of the Act.
While at this time there are very few details known about the intended process or timeline for the Law Reform Commission’s review of the Act, it is widely expected that any update(s) to the Act will address industry demands for prompt payment requirements and protections.
In Ontario, the recent review of lien legislation and extensive consultations with industry stakeholders led to a number of recommendations that prompt payment provisions be added to the Ontario lien legislation (to be renamed the Construction Act). Many of the recommendations were ultimately incorporated in the Construction Lien Amendment Act, 2017, which was passed on December 5, 2017.
The Ontario approach to prompt payment involves implementing a system where invoices are issued in writing on a monthly basis unless the contract between the parties specifies a different time period. Once an invoice is received by an owner, he/she has 28 days to make payment to the contractor unless the invoice is formally disputed. Owners have 14 days after receiving an invoice to provide the contractor a “notice of non-payment,” which identifies both the invoice in question and all of the reasons for non-payment. If an invoice is not disputed, contractors who receive payment from owners have seven days to make payment to the subcontractors who supplied materials or services to the invoice(s) that were paid by the owner.
In the event that the owner only makes partial payment to a contractor for an invoice, the Act adopts rules to determine how payment is to be made. Generally speaking, unless the amount not paid by the owner is specific to services or materials provided by a particular subcontractor, subcontractors are to be paid on a proportional basis out of the available funds.
Regardless of whether the owner makes payment to the contractor on account of an invoice, the revised Ontario legislation requires the contractor to make payment to its subcontractors within 35 days after giving the owner the invoice – unless the contractor takes steps to dispute the entitlement of the subcontractor to receive payment of an amount under the subcontract.
The Ontario revisions also set up a construction dispute interim adjudication process, which process allows the parties to a contract to refer the following matters to adjudication:
- The valuation of services or materials provided;
- Payment under the contract, including in respect of change orders regardless of whether approved or not;
- Disputes arising out of a notice of non-payment;
- Amounts retained from amounts otherwise payable;
- Payment of the holdback;
- Non-payment of holdback; and
- Any other matter to which the parties agree.
Decisions of the adjudicator are to be made within 30 days of the submission of materials and are admissible as evidence in court. Where an adjudicator finds that an amount is payable, that amount is to be paid within 10 days after the decision is released to the parties.
If the amount is not paid within 10 days, the party entitled to receive payment may suspend further work under the contract/subcontract until it receives the following:
- The amount to be paid under the adjudicator’s decision;
- Any interest accrued on the amount to be paid; and
- Any reasonable costs incurred by the contactor (or subcontractor) as a result of the suspension of work.
The adjudicator’s decision can be appealed, on leave, to the Divisional Court, and can only be set aside on the specific grounds set out in the legislation.
Although it is too early to tell how well it works in practice, on paper the prompt payment system now being implemented in Ontario appears to strike a reasonable balance between the competing interests of owners, contractors and subcontractors. It will be interesting to see what, if any, “made in Manitoba” solutions for the industry’s prompt payment concerns will result from the Manitoba Law Reform Commission’s review, or whether the approach taken in Ontario will largely be adopted in Manitoba.
Note: This summary is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
This article first appeared in Build Manitoba (Issue 1 Spring Edition 2018), a publication of the Winnipeg Construction Association.
Daryl A. Chicoine is a partner in the construction law practice area at MLT Aikins LLP. Reach him at email@example.com or (204) 957-4605.