prompt payment Bill 142

Bill 142 ensures contractors get prompt payment

Bonds also now mandatory on public work in Ontario
Wednesday, January 17, 2018
by Bob Sloat

On December 5, Bill 142 passed third reading in the Ontario Legislature. The measure was supported by all three parties with the final vote tally of 87-0. This new legislation completely overhauls the province’s moribund Construction Lien Act which has been in effect since 1983.

One of the key objectives of Ontario’s review of its Construction Lien Act – which took more than a year and involved an extensive consultation process with over 175 construction sector stakeholders – was to address the vexing issues around prompt payment. For many reasons the payment chain has become clogged over the past number of years, causing hardships and worse for increasing numbers of trades and suppliers. Prompt pay has become arguably the largest concern and issue for the construction sector.

Importantly, Bill 142 includes a new Section II.1 which requires that all public work in the province be protected by Performance bonds and Labour & Material Payment bonds. This provision, the first of its kind in Canada, is akin to the Miller Act measures which have been in force in the United States since 1935. The bond requirements help to ensure both the certainty and timeliness of the payment regime for public construction in the province and were an integral part the bill’s overall objective.

But Bill 142 was a good deal more than just bonds. Ontario can now arguably claim to have the most equitable and responsive construction payment protocol in North America. The bill introduces a number of sorely needed updates and upgrades to Ontario’s construction payment and lien provisions that bring about a level of fairness and efficiency never seen before. Among the key improvements found in the new legislation:

  • A reworking of the payment protocol in recognition of the changes in methods of construction procurement, delivery and payment that have taken place over the last 30 years (e.g. P3 projects).
  • The creation of new prompt payment rules to give contractors and subcontractors certainty about when to expect payment.
  • Extension of the timelines to file liens and start court actions, giving contractors and subcontractors time to resolve their disputes outside of court and avoid additional legal fees.
  • The requirement for holdback funds to be paid as soon as the deadline to file liens has passed, so contractors and subcontractors know when to expect full payment.
  • The introduction of an adjudication process which will be binding on an interim basis. This will speed up dispute resolution and prevent disputes from delaying work on construction projects.

That said, it should be noted that the work to fully implement Bill 142 in Ontario is not yet done. As in so many other groundbreaking measures, the devil will be found in the details. Over the next few months, the Ministry of the Attorney General of Ontario will be working on the development of supporting regulations to ensure that the new rules can be followed in an efficient, equitable and workable manner.

For the construction industry, this next step is critical as it is the regulations that will determine the bond language, the penal sum requirements for the performance and payment bonds and the surety’s role in the adjudication process. The Surety Association of Canada (SAC) will continue to work diligently with its industry partners and of course the Ministry and the advisory group to ensure that the surety-related regulations will serve the needs of our industry, construction stakeholders and Ontario taxpayers and looks forward to the work ahead in Ontario.

Given the importance of this issue, we can anticipate that similar initiatives will be undertaken in other provinces; SAC is prepared to work with construction sector partners on the changes as they unfold.

We also know that the prompt pay issue is being pursued by construction associations and others in B.C. and Alberta. To date this has resulted in special provisions being written into Alberta Infrastructure procurement contracts, after a consultation process with the Alberta Construction Association. These provisions mean more transparency in the payment chain and allow trades and suppliers to know better the work that has been paid for as payment milestones are achieved. In B.C., the construction law section of the B.C. Bar Association is conducting a review of B.C.’s Lien Act with a view to the effect it has and could have on payment chain issues.

In short, the prompt payment train has ‘left the station’ and we can expect to see momentum on this front across the west over the months and years ahead.

 

Bob Sloat is director business development, Western Canada for the Surety Association of Canada.

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