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Construction Act Review Recommendations

Read our recommendations to the Ministry of the Attorney General.

The OSWCA has recently consulted with the Government of Ontario on upcoming changes related to the Construction Act. Below you will find the OSWCA's recommendations to the Ministry of the Attorney General.

Background:

Ontario's new Construction Act ("the Act") is a critical piece of legislation, reformed in 2017 to create a more equitable business environment for all parties operating in the construction sector. Notably to ensure those procuring improvement for their land, pay for such improvements in a timely fashion, while also ensuring fair and honest dealings and protecting owners of land, general contractors and all subcontractors down the chain. In support of these assurances, the Act enables statutory rights and obligations to be enforced at the least possible expense and in prompt fashion.

At the time of Bill 142's passing, it was recommended that the Act be reviewed within 5 years to evaluate the success of the changes made. Accordingly, in February 2024 the Ontario Attorney General announced they would be embarking on a review process of that statute, prioritizing possible improvements to the Construction Act. The OSWCA is supportive of the amendments creating such rights and obligations and offers the following recommendations to further support the new Regime and the intent of the amendments.

Preventing Penalty for Contractor and Subcontractor Exercise of Rights Under the Act

The OSWCA is supportive of amendments to the Act that will improve project parties' access to and use of adjudication. The use of reprisal clauses, however, directly dissuades contractors and subcontractors from exercising their rights under the Act, including their rights to engage the adjudication process, by providing that, should a person make use of adjudication in accordance with the Act, they may be disqualified or otherwise precluded from participating in future procurement and project opportunities. These clauses intentionally disincentivize parties' exercise of their rights under the Act which is in direct conflict with the foundational principles of the Act and undermines the intent and purpose of fundamental rights and remedies granted under the Act. The OSWCA accordingly recommends the Act be amended to render the use of any such reprisal clauses null and void. Specifically, ensure that no personal shall disqualify or otherwise preclude participation by a contractor in a procurement process, or threaten to do so, because such contractor exercised their rights or otherwise sought remedy under this Act.

Holdback

The changes to lien, holdback and trust provisions that came into force on July 1, 2018 included the introduction of Subsection 22(4) to permit the retaining of holdback in the form of letters of credit and demand-worded holdback repayment bonds instead of in the form of funds. The use of the permitted alternate forms of holdback, however, requires agreement of the parties such that holdback continues to be retained in the form of funds unless the owner agrees to accept an alternate form of holdback. As a result, alternate forms of holdback are not frequently used even where their use would be of great benefit to the contractor and subcontractors by improving project cash flow, particularly on higher value contracts where the quantum of holdback to be retained is significant. The OSWCA accordingly recommends that the Act be amended to allow the contractor to elect to use of other permissible forms of holdback for higher value contracts, such as contracts with a value of $5M or more.

Similar issues arise with respect to the permitted phased and annual release of holdback introduced through the changes to the lien, holdback and trust provisions which came into force on July 1, 2018. Specifically, permitting the release of holdback on a phased or annual basis provides a further opportunity for cash to flow more quickly, while maintaining protections for sub-contractors and lien claims. Unfortunately, due to the permissive wording, this mechanism is seldom utilized, as many contracts do not provide for payment of accrued holdback on a phased or annual basis.

This is particularly troublesome as the phased or annual release of holdback would significantly benefit sub-contractors that have completed their work early in the project and must wait until substantial completion of the project for the release of their holdback. Releasing the holdback on a phased or annual basis would not only help alleviate the carrying cost down the chain, but also provide cost savings to those back up the chain, as contractors and subcontractors know they will be receiving their holdback within months rather than potentially years.In response, the OSWCA recommends adjusting the permissive wording, and rather, mandating the release of holdback on an annual basis for contracts which extend beyond two years.

Improving the Prompt Payment Process

The OSWCA is supportive of the recommendations submitted to the Attorney General by G. Ackerley with respect to "Promptness of Payment". In particular, the lack of obligation for an owner to provide the contractor with notice when an application for payment is rejected or ignored due to being deemed "improper", unnecessarily interrupts and delays the prompt payment process. The OSWCA supports the recommendation to a new definition of "improper invoice" and require and an owner to object to the invoice submitted by a contractor as being "improper" within 3 days of receipt, failing which the invoice submitted by the contractor will be deemed to be considered proper. Without this notice there is no obligation on the owner to acknowledge a proper invoice as a proper invoice when such invoice fails to meet the criteria set out in the contract.

Similarly, timely payment to subcontractors is also undermined where the contractor is under no obligation to timely include subcontractor applications for payment in their proper invoices. As such, the OSWCA supports a recommendation to require contractors to include the full value of the services and materials supplied by all subcontractors in the proper invoice. Subcontractors should also be made aware of when a proper invoice has been issued so that they know when to expect receipt of payment or a notice of non-payment in accordance with the Act.

Please reach out to Krisha Ruchlewicz (krisha.ruchlewicz@oswca.org) if you have any questions relating to the Construction Act.

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