By David I. Bristow, QC, LSM, C.Arb.
The proposed Prompt Payment Act of Ontario, Bill 69, has passed its first and second readings in the Ontario Provincial Legislature and is now in the committee stage before its third reading in conjunction with the Construction Lien Act of Ontario. But what does this really mean for building owners and the design/construction professionals practising in the province?
The proposed act is all about making sure those who provide work, service, or materials to a construction project get paid on a strict time basis. Failure to pay is extremely onerous and costly under this bill, as is any owner’s failure to produce financial information to contractors showing an ability to make all payments under the contractor.
This article touches neither on the merits of the proposed act, nor the torrent of litigation that is most certain to follow it if passed. Rather, it serves to warn everyone in the industry—even those outside Ontario, should other jurisdictions pick up on the idea—as to what the act actually says in order all might be prepared to face this important legislation.
The explanatory note at the beginning of Bill 69 states as follows:
The Bill enacts the Prompt Payment Act, 2013. The Act sets out various rules and requirements in relation to payments made under construction contracts.
Among other things, Part II of the Act entitles contractors and subcontractors to receive progress payments and to suspend work or terminate a contract if such payments are not made. It also provides that payments can only be withheld if the payer notifies the payee that a payment application is disapproved or amended within 10 days after it is submitted. Limits are imposed on the amount that can be withheld.
Part III of the Act requires owners to provide contractors with certain financial information before entering into a contract. It also entitles subcontractors to receive certain financial information.
Part IV of the Act authorizes the Lieutenant Governor in Council to make various regulations, including regulations that exempt contracts or subcontracts from the application of the Act.
This author touches on certain clauses only to illustrate what may be ahead.
Part I: General
(1) The terms used in the Prompt Payment Act have the same meaning as in the Construction Lien Act, unless the context requires otherwise.
(2) The Act binds the crown.
(3) The Act will not apply to any contract or subcontract prescribed by the regulations.
(4) Every contract or subcontract related to an improvement is deemed to be amended in so far as is necessary to be in conformity with the Act.
Part II: Payments
Part II deals with aspects related to payments.
Holdbacks under the Construction Lien Act
Any entitlement to receive payments under the act is subject to the payer’s obligation to retain holdbacks under the Construction Lien Act.
A payer shall pay the holdback’s value within one day after the day he or she is no longer required to retain the holdback under the Construction Lien Act.
A payer shall not withhold any payment other than those the payer is permitted, or required, to withhold under either of the acts.
The right to receive progress payments
If a contract calls for progress payments to be made at least every 31 days after the first services or materials are supplied to the improvement, then the contract is followed. If not, then Section 6 applies. This section states the payee shall prepare a monthly progress payment application submitted at the end of each month, and the payer must pay within 20 days. The progress payment application may rely on reasonable estimates.
The right to suspend work or terminate contract
A payee may suspend work or terminate a contract or subcontract if not paid a progress payment that the payee is entitled to under the act.
The suspension or termination must be done in accordance with the contract or subcontract. If the contract is silent, then Section 8 applies. It states when a payee has not been paid a progress payment, it may suspend work or terminate a contract provided the payer has been given seven days of written notice of the intention to suspend the work or terminate the contract. After seven days, if the payee gives the payer a written notice of the suspension or termination, then the contract is suspended or terminated.
If a payee resumes work following a suspension, the payer must pay for any reasonable demobilization and remobilization costs.
The right to receive final payment
If the contract provides a time for a final payment, the payment time follows the contract, but if not, Section 11 applies. This states the contractor shall submit a final payment application on or after the date the contract is deemed to be completed and services or materials are deemed to be last supplied to the improvement under subsection 2(3) of the Construction Liens Act.
Final payment shall be made five days after a payment certificate is issued by a payment certifier; when there is no payment certifier, then it must be 15 days after the final bill is submitted.
The payer can dispute the final account within 10 days, but the amount disapproved must be limited to a reasonable estimate of any direct loss, damage, cost, or expense incurred by the payer that is recoverable under the contract or subcontract.
Part III: The right to information
Before entering into a contract, the owner shall provide the contractor with financial information to demonstrate its ability to make all payments under the contract, and the contractor can continue to demand updated financial information. The information is confidential—anyone breaching the confidentiality is liable for any damage sustained.
A person who fails to provide the financial information or misstates it is liable for any damages sustained. A judge may at any time order a person to comply with the requirement to provide financial information required under the Act.
Part IV: Regulations
Regulations may be made pertaining to anything referred to in the act. As yet, there are no draft regulations.
At the time of this article, it is not certain whether the proposed Prompt Payment Act of Ontario will pass in full, with amendments, or will be rejected. However, when any storm is approaching, especially one with such potential velocity and downpour, it is better to not wait until it passes, but rather learn right away how to dance in the rain. To do this it is essential everyone—architects, contractors, and building owners—obtain and read a copy of Bill 69 as soon as possible.
David I. Bristow, QC, LSM, C.Arb., is a member of Team Resolution, a Toronto-based alternative dispute resolution group. He is a former counsel to a national Canadian law firm, where he headed the construction law group, and is a co-author of Construction Builders’ and Mechanics’ Liens in Canada. Bristow was the founding chair of the Ontario Bar Association (OBA) Construction Law Section and a past chair of the Canadian Bar Association (CBA) Construction Law Section. In 2002, he received the Law Society of Upper Canada Medal, the Golden Jubilee Medal of Queen Elizabeth II, and the Giffin Award for outstanding service to the construction industry. Bristow can be contacted via e-mail at email@example.com.