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    Ontario’s New Prompt Payment Regime

    As of October 2019, typical practices and procedures for payments in the construction industry in Ontario will drastically change. Is anyone really ready?

    With the amendments creating the Construction Act comes a ‘prompt payment’ regime for Ontario. By regulating construction payments, it will bring with it an administrative challenge for most in the construction industry as they transition to this new world.

    As with any regulated industry, there are no shortages of forms for the new Act. For prompt payment, there are 5 forms to familiarize yourself with. 

    Form 1.1 – owner to contractor when owner disputes contractor invoice

    Form 1.2 – contractor to subcontractor when owner fails to pay or disputes

    Form 1.3 – contractor to subcontractor when contractor disputes

    Form 1.4 – subcontractor to subcontractor when contractor fails to pay

    Form 1.5 – subcontractor to subcontractor when subcontractor disputes

    The prompt payment process starts at t=0 with the contractor ‘giving’ a proper invoice to the owner. A proper invoice will have all the prescribed information in it and will be properly delivered to the owner. Information required in the proper invoice includes (but isn’t limited to) the contractor’s name, the period of supply, the authority for supply, a description of the services or materials supplied.

    Section 6.3 of the Act sets out how that proper invoice should be ‘given’. Important to note here is that unless specified in the contract, invoices must be sent monthly. Section 87 of the Act provides that documents may be exchanged by personal service, service by mail or email, service at a person’s residence, or service at a last known address. Important to note here is that service by mail is deemed to occur five days after the date of mailing. Let’s look at how the prompt payments system will work down the construction pyramid.

    Payment: Owner to Contractor

    Once the invoice is ‘given’, the owner has fourteen days to dispute all or part of the invoice and twenty-eight days to pay the invoice. An owner’s dispute over an invoice is triggered with the filing of Form 1.1. Form 1.1 requires the owner to identify the amount in dispute and reasons for non-payment. If Form 1.1 is not delivered at t=14d, then the owner must pay in the invoice by t=28d.

    Payment: Contractor to Subcontractor

    Where the contractor receives full payment of the invoice, the contractor has seven days (after receiving payment) to make payment to the subcontractor(s) included in the invoice. If the owner has paid the invoice in full but the contractor disputes all or part of a subcontractor’s entitlement to payment, the contractor must give that subcontractor a Form 1.3. As in the owner’s notice, Form 1.3 requires the contractor to identify the amount in dispute and reasons for non-payment. Here, Form 1.3 must be given to the subcontractor by t=35d (i.e. within 35 days after the invoice was given to the owner).

    Where the owner makes no payment or partial payment on the invoice, the contractor has until t=35d to pay the subcontractor or, alternatively, has seven days from the date of receipt of the notice of non-payment from the owner to deliver a Form 1.2. Important here is that within twenty-one days of delivering a Form 1.2, the contractor must refer the matter to adjudication.

    Payment: Subcontractor to Subcontractor

    The payment regime is mirrored down the construction pyramid. A subcontractor that receives full payment from a contractor can pay their subcontractors or dispute. Payment must be made by t=42d. Otherwise, to dispute payment down the pyramid the paid subcontractor must give a Form 1.5. In this scenario, the Form 1.5 must be given to the unpaid subcontractor by t=42d.

    As with the contractor, where a subcontractor receives no payment they still have to pay their subcontractor(s). But, where the subcontractor receives a Form 1.3, the subcontractor has seven days from receiving that notice to deliver a Form 1.4. Further, the subcontractor must refer the matter to adjudication within twenty-one days of delivering a Form 1.4.

    Practical Impacts

    A contractor or subcontractor must be agile enough to meet these new payment timelines. Here are some practical implications to consider when preparing for the new payment regime.

    1. Invoices will take more time to complete
      Must meet statutory requirements including identifying contract authority and describing services and/or materials invoiced.
    2. Money must move quick
      Seven days. Seven.
    3. Firms must be ready for adjudication
      Firms will need to quickly pick an adjudicator and file materials.
    4. Need detailed records for management of suppliers and subcontractors
      Firms will need to be able to detail any reasons for non-payment.

    These changes will mean that a traditionally reactive industry will now need to become more proactive in terms of moving money and in terms of supply/subcontractor management. Firms must heed the warnings of Ontario’s new prompt payment requirements and prepare for these new changes or risk being caught in adjudication.

    If you have questions about Ontario’s prompt payment regime or other construction law inquiries, contact Roxie Graystone at 613-563-6695 or by email at [email protected].

    This article originally appeared in the February 2019 issue of Ottawa Construction Association’s publication, Construction Comment Magazine.

    The content on this website is for information purposes only and is not legal advice, which cannot be given without knowing the facts of a specific situation. You should never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The use of the website does not establish a solicitor and client relationship. If you would like to discuss your specific legal needs with us, please contact our office at 613-563-7544 and one of our lawyers will be happy to assist you.

    Posted By: Roxie Graystone of Merovitz Potechin LLP

    Associate

    Roxie’s education as an engineer and his experience as a drafting technician provides a great background for his construction law practice. Roxie has a degree in environmental engineering and has over 10 years of experience as an environmental lawyer and general litigation lawyer. He brings a practical and multidisciplinary approach to his environmental law and construction law practice. In addition to his construction law practice Roxie provides strategic advice and solutions to lawyers, environmental groups and corporations facing complex environmental problems, including soil and water contamination and flooding along with regulatory matters with Ontario’s Ministry of the Environment and Climate Change.

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