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The Ontario Construction Act: Prompt Payment and Adjudication Information

On July 1, 2018, a number of housekeeping changes in the new Construction Act came into effect. In response to these changes, the OAA issued new documents and revisions to a number of existing documents including OAA standard contracts, Practice Tips 2, 10, 10.1, 10.2, & 25, OAA/OGCA Take-Over Procedures (Document 100) and various Management of the Project documents.

On October 1, 2019, the more substantive changes in the Construction Act came into effect. The two new provisions are the implementation of Canada’s first prompt payment legislation and an adjudication regime to speed up dispute resolution. In response to these changes, the OAA is again preparing new and revising existing documents, including the OAA standard contracts, Practice Tips and Management of the Project documents. These documents will be issued as they become available. Members will be notified through OAA News and OAA Practice Advisories e-newsletters. 

In the interim, there are a number of key points for members to consider. 

Office Processes and Timeframes

Much of the focus has been on prompt payment because of the shortened time frames. On projects where it applies (see below), prompt payment is fairly straightforward and the requirements are consistent from month to month. Practices with multiple projects under construction at the same time may consider staggering the dates on which applications for payment are to be submitted to smooth out extreme peaks of activity at the end of every month and rather spread the review and certification activity throughout each month. 

Adjudication, on the other hand, cannot be characterized as a consistent or necessarily predictable event. It is intended to provide a quick interim settlement of disputes in order to keep the money flowing. Other than the time frames, each adjudication may be unique in scope, complexity and process. Adjudication is also likely to disrupt normal office processes because of the tight timeframes. Practices should anticipate the need to quickly access the relevant documents regardless of source, make staff with knowledge of the project available even if they are already working on another project and obtain appropriate legal advice within the mandatory timeframes. 

Prompt payment affects existing tasks that members routinely perform for clients. Adjudication is something completely new and will require extra services for which members should ensure they are appropriately compensated. 

Which version of the legislation does a project fall under?

There are transition rules that determine the applicable legislation. Some offices will have:

  • projects continuing under the provisions of the Construction Lien Act as it existed prior to July 1, 2018;
  • projects operating under the Construction Act July 1, 2018 amendments; and
  • new projects under the Construction Act October 1, 2019 provisions.

In some instances, the client/architect agreement may not be under the same provisions of the Act as the construction contract for the same project. 

When assessing whether your project falls under the old or the new legislation, the key question is “when did the procurement process start?” and not “when was the contract signed?” 

Members should ask the client to advise about the procurement start date. Members should consider stating in the bid documents either the procurement start date or which version of the legislation is applicable, so that all bidders know which rules will apply. 

Application for Payment and Certificate for Payment

Both prompt payment and adjudication come with their own shortened time frames and schedules. Application for payment processes and certificate for payment processes will need to be revised to reflect both the new time frames and the fact that the clock starts when the client receives a proper invoice from the contractor—not when the member issues a certificate for payment. 

Members should consider adding a supplementary condition to the construction contract requiring the contractor to submit copies of the application for payment to the owner and the “Consultant” at the same time, so as not to lose any of the time available to process the application for payment. 

The client or their lawyer should be advising on the key dates of any adjudication between the client and contractor. Members will have to make themselves aware of the key dates of any adjudication between the member and the client. 

Adjudication

Assisting a client in responding to an adjudication is not yet included in the scopes of work of any of the OAA contracts. Consider adding it as a line item at an hourly rate to new client and subconsultant agreements. No one knows how frequently adjudications will occur or how much effort will be involved. 

Ontario Dispute Adjudication for Construction Contracts (ODACC), the Authorized Nominating Authority (ANA) under the Construction Act, has established a range of suggested adjudication processes that may be chosen by the adjudicator with input from the parties. The processes range from two-page written submissions from both parties at a cost of $800 to multi-page written submissions, oral testimonies and multiple witnesses at a cost of $750 per hour. 

It is anticipated that members will be asked by clients to help the latter prepare its response. Members should be properly compensated for this scope. Due to the short time frames, it will be important for members to keep good records and to be able to access them very quickly. 

Discrepancies between the Contractor’s Application for Payment and the Architect’s Certificate for Payment

Where a member’s certificate for payment is for a different value than the contractor’s application for payment, there are several possible scenarios:

A) the contractor may choose to submit a revised application for payment consistent with the certificate for payment;
B) the client may choose to disregard the certificate and pay the contractor what was requested;
C) the client may pay the certified amount and the contractor may pay the subcontractors out of pocket; or
D) the client may pay the certified amount and the contractor may decide to adjudicate the dispute.

This list does not address the time frames and notices that apply. 

The legislation explicitly states that submission of the proper invoice cannot be made dependant on prior certification. This does not preclude the contractor and member from coming to an agreement on the appropriate value before the invoice is submitted, it just means that such agreement is not a prerequisite. Members are encouraged to discuss the value of the invoice with the contractor before it is submitted. 

In all cases, when preparing a certificate for payment in an amount different from the application for payment amount, members should keep in mind they may be called upon to justify the amount and provide a clear and well-supported rationale to the client that will form the basis of the client’s response in the adjudication that may arise. 

Legal Interpretation

No legislation is perfectly written. Until some aspects of the Construction Act are litigated before a judge, what the law says may be interpreted differently by different lawyers and adjudicators. Members should not interpret the law for clients, but refer them to their own legal counsel. Members should also consult legal counsel about how the law impacts them and their practice.