Published on: 21/10/2013
Most construction work is project based and involves an owner, who is the buyer of construction services, a general contractor, many sub-contractors and sub-sub-contractors. Within the contracts that govern these projects, there is often "pay when paid" or "pay if paid" clauses that allow owners/contractors to delay or deny payment to contractors/subcontractors. Bill 69 is the latest attempt to introduce prompt payment legislation into the provincial construction industry to counteract this process, by setting out minimum payment schedule guidelines that ensure contractors/subcontractors are paid regularly for the work that they are undertaking.
Bill 69 was introduced by Vaughn MPP Steven Del Duca earlier in 2013 and has passed second reading in the Legislature. The Bill has been referred to the Standing Committee on Regulations and Private Bills, where it will be reviewed and revised according to stakeholder input, at which point it may be re-introduced into the Legislature for a third-and-final reading.
If this Bill passes third reading, Ontario will become the first province with prompt payment legislation in Canada.
Overview of the Bill
Without providing an exhaustive summary of the Bill, key highlights include:
Ã¢â‚¬Â¢ all existing contracts and subcontracts will be deemed to be amended in order to conform to the legislation;
Ã¢â‚¬Â¢ no funds can be withheld other than as permitted by the proposed legislation (see the reference to unapproved payment applications below) or the Construction Lien Act;
Ã¢â‚¬Â¢ if a contract or subcontract does not provide for progress payments every 31 days after services or materials are first supplied to a project, then:
o a contractor would be entitled under the Act to payment within 20 days after submitting a progress payment application following the conclusion of a monthly payment period; and,
o a subcontractor would be entitled to payment within the later of 10 days after a payment certificate is issued or 30 days after submitting a progress payment application;
Ã¢â‚¬Â¢ a contractor/sub-contractor who is not paid in accordance with the legislation would be entitled to suspension and termination rights upon providing seven days notice;
Ã¢â‚¬Â¢ a payment application is deemed to be approved 10 days after it is submitted unless a written notice that all or part of the application is being disapproved or amended;
Ã¢â‚¬Â¢ where a payment application is not approved for final payment, only the portion of the payment that is disapproved or required for amendment may be withheld; and
Ã¢â‚¬Â¢ prior to the commencement of a project, an owner would be required to provide financial information for the purpose of demonstrating the financial ability of the owner to make contract payments.
Issues for Clarification
During the Committee phase, the Bill must address two primary questions:
1. Does the legislation as proposed achieve the industryÃ¢â‚¬â„¢s objectives?
2. Is the legislation as proposed consistent with the contracts that are now being entered into on large, complex construction projects?
Presently, it is not uncommon for owners/contractors/subcontractors to negotiate payment mechanisms that are not consistent with what is proposed by Bill 69; particularly on P3/AFP projects. The legislation, as presently drafted, would therefore have a significant impact on:
Ã¢â‚¬Â¢ negotiated payment provisions that are tied to milestones rather than monthly deadlines;
Ã¢â‚¬Â¢ contract clauses permitting set-off or the withholding of funds for deficient work or delays;
Ã¢â‚¬Â¢ "pay-when-paid" provisions; and,
Ã¢â‚¬Â¢ liquidated damage clauses.
Prompt payment legislation is in place in a number of other jurisdictions (US, UK, Australia, Ireland, New Zealand, etc), so the provisions being dealt with are not precedent-setting in construction; however they would have a significant impact on how contracts are designed.
To view the full "Prompt Payment Act," please download the attachment below.