The New “Prompt Payment” Provisions Under The Construction Act

OCLA & Prompt Payment

Q. I’m a contractor. What can I do to better ensure that I get paid quickly on the projects to which my company, and my subtrades, provide materials and services?

A.         On October 1, 2019, the second round of amendments to the Ontario Construction Lien Act, now the Construction Act, will come into force. One of the forthcoming amendments to the Construction Act will be to put into effect a “prompt payment” regime for all public and private sector construction contracts. This regime will require payment within 28 days between the owner and general contractor from the date of submission of a “proper invoice.”

A “proper invoice” means “a written bill or other request for payment for services or materials in respect of an improvement under a contract, if it contains the following information and meets any other requirements that the contract specifies:

1. The contractor’s name and address.
2. The date of the proper invoice and period during which the service of materials were supplied.
3. Information identifying the authority, whether in the contract or otherwise, under which the services of materials were supplied.
4. A description, including quantity where appropriate, of the services or materials that were supplied.
5. The amount payable for the services or materials that were supplied, and the payment terms.
6. The name, title, telephone number and mailing address of the person to whom payment is to be sent.
7. Any other information that may be prescribed.”

Proper invoices must be given to an owner on a monthly basis, unless the contract provides otherwise. A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of  payment certifier, or on the owner’s prior approval, is of no force or effect.

Upon receiving full payment form the owner, the general contractor has 7 days to pay the amount payable to each subcontractor who supplied services and/or materials that were included in the proper invoice. Subject to the giving of a notice of non-payment where the money withheld by the owner relates to the work of a specific subcontractor, the money paid will be distributed to the other subcontractors rateably. It is important to also note that under the new prompt payment regime, an owner, general contractor or any other payer will be allowed to set-off against invoices by submitting a “Notice of Intention to Withhold Payment” within 7 days of a receipt of a proper invoice, specifying the amount that is not being paid and detailing the reasons for the non-payment.

While the prompt payment provisions have not yet come into effect, it is a good idea for contractors to start looking at their billing practices to ensure that invoices are prepared in accordance with the requirements identified above, and are ultimately delivered on a monthly basis, or in keeping with the timelines set out under the contract.

Q.        What if I render my accounts properly and in the time prescribed, but I’m still not paid?

A.        The Construction Act will also provide for adjudication to enforce the prompt payment regime. The contractor or subcontractor can legally stop work until paid. In addition, mandatory interest rules will apply, and reasonable costs incurred during the delayed payment can be claimed for reimbursement.  The adjudicator’s decision will be filed with the court and will be subject to the same enforcement as any court order. This means that the party who disregards the adjudicator’s determination will be subject to enforcement procedures, including garnishment, seizure of property, and examinations in aid of execution.

Again, neither prompt payment nor adjudication are happening yet. Both regimes will apply only in respect of contracts and subcontracts entered into on or after October 1, 2019.

The above information is provided by way of guidance as to the application of the amended legislation. It is not exhaustive in its scope and is not legal advice. It is strongly recommended that you consult with a specialized construction lawyer to determine how the amendments will affect your business and what you need to do to prepare.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author atipichini@kmblaw.com or (905) 276-0420