On October 1, 2019, the prompt payment and adjudication regime of the Construction Act (the “Act”) came into force to improve payment and cashflow to contractors on construction projects. The changes apply to any contract between a contractor and property owner for the supply of services or materials for any alteration, addition or capital repair to the land (among other work). Any condo who is party to such a contract is subject to the “28-7-7-7” prompt payment clock and adjudication regime.
The changes also amended traditional construction lien legislation, including the deadlines to preserve and perfect a lien and holdback releases.
This is Part I of our two-part series, where we explore how these changes impact construction contracts, specifically the CCDC 2 Stipulated Price Contract, and projects at condos now that we have had about 1.5 years (and a pandemic!) to reflect on it.
A quick review of the prompt payment regime is necessary to consider its implications on constructions contracts. The prompt payment clock is triggered when a property owner (in our context, a condo) receives a “proper invoice” from the contractor. A proper invoice must contain certain information defined in the Act such as: the date of the invoice, a description and quantity of the materials or services supplied, the amount payable, etc.
On receiving a proper invoice from the contractor, a condo will have 28 days to pay the contractor. The contractor then has 7 days to pay subcontractors and subcontractors have another 7 days to pay their subcontractors, and so on down the construction pyramid. If payment is late, the condo pays interest to the contractor. Note that these dates are calendar days, not business days.
Disputing an invoice
If a property owner or condo disputes a proper invoice, it must give the contractor a notice of non-payment within 14 days of receiving the proper invoice. If the notice of non-payment is not given by the deadline, the full amount of the invoice must be paid to the contractor within the 28-day deadline despite objections. A party may only refer a dispute to adjudication when a notice of non-payment is delivered.
Adjudications are administered by the Ontario Dispute Adjudication for Construction Contracts and decisions are made within 30 days of receiving documents from the initiating party. The determination is binding until resolved in court or at arbitration (or set aside on judicial review). If payment is ordered, a condo will have 10 days to pay, or the contractor may suspend work. A determination can be enforced as if it was a court order.
These concepts and other modernizations were recently incorporated into the Canadian Construction Documents Committee’s (“CCDC”) CCDC 2 (2020) Stipulated Price Contract, which is the standard contract used in industry for fixed price construction projects. The 2020 version of this contract now includes updated terms such as:
- Provisions relating to the prompt payment regime and the holdback release, including:
- The contractor must give all applications for payment to both the property owner and their consultant (typically, an engineering firm overseeing the project) at the same time;
- An application for payment must be a “proper invoice” under the Act;
- The property owner (not the consultant) must notify the contractor of any objections to the payment application and must issue the notice of non-payment to the contractor;
- The property owner must pay the contractor within 28 days of the proper invoice;
- The property owner must pay the statutory holdback to the contractor after the end of the lien period;
- A new adjudication section, which also specifies that adjudication does not affect other traditional dispute resolution processes such as mediation and arbitration;
- A new “Owner Takeover” and “Ready-for-Takeover” section, which refers to the substantial performance of work and covers the steps and applications necessary for the property owner to takeover or occupy all or part of the work;
- New terms relating to construction safety, including a requirement that both the contractor and property owner comply with health and safety regulations. Property owners are now responsible for ensuring that its other contractors and personnel (e.g., property management if present at jobsite) follow the health and safety programs of the contractor. Note that construction employers also have the obligation to protect workers from COVID-19 and to prevent outbreaks at jobsites. COVID-19 health and safety requirements should be strictly followed;
- Clarification on what costs a contractor may charge;
- Explained terms further distinguishing between delays caused by (i) the property owner, (ii) stop work orders, and (iii) events outside the control of the contractor;
- Revisions to the timing of and setting limits to indemnification claims.
Amendments to another commonly used contract for condominium projects, the CCDC 4 Unit Price Contract, and other standard contracts will likely be published by the CCDC as they update the contracts.
Condos may negotiate changes to these standard contracts. There is usually room for condo specific improvements, protections and adjustments to help the project to run smoothly and avoid future disputes. Even within the statutory prompt payment regime, the parties have flexibility to negotiate certain terms such as the timeframe for contractor billings (default is monthly) or the interest rate on late payments. Adjustments to the standard contract should correspond with provisions in any consultant contract and consider a condo’s circumstances and the nature of the project.
Ask us about your condo’s next construction contract (and consultant contract) and our set of standard amendments and supplementary conditions. And stay tuned for Part II!