Changes All Owners, Contractors, and Sub-Contractors Need to Know
The Construction Lien Act has been re-named to the Construction Act (the “Act”) and with the different name came dramatic changes that will undoubtedly alter how you and your company will manage its affairs.
There are many lien amendments; however, this article will focus on the following major amendments: (1) a mandatory “prompt payment” system; (2) a new dispute resolution process; and (3) the Grandfathering provisions. The implications of these changes are significant for construction companies of any size, so it’s important that all owners, contractors and sub-contractors become familiar with them.
The new dispute resolution system ensures compliance with a prompt payment regime by offering parties a fast method to get the money they are owed.
To ensure prompt payment, a contractor must submit a “proper invoice” to an owner on a monthly basis (unless the contract provides otherwise). In order to qualify as a “proper invoice”, the Construction Act lists numerous requirements, highlighted by the following: contractor’s name and address, date of the invoice, identification of the authority for services and materials supplied, amount payable, description of services or materials supplied.
Once a contractor submits a proper invoice to an owner, the owner is required to pay the amount of the invoice within 28 days. The owner may refuse to pay all or a portion of the invoice, but only if the owner issues a “notice of non-payment” to the contractor within 14 days of receipt of the proper invoice. The notice of non-payment must set out the amount and reason for the non-payment. If the contractor disagrees with the notice of non-payment, it can refer the matter to the new adjudication procedure.
A general contractor is required to pay its sub-contractors within 7 days of receiving payment from an owner. The contractor may refuse to pay all or a portion of the sub-contractors’ invoice, but only if the contractor issues to the sub-contractor a notice of non-payment. If the sub-contractor disagrees with the notice of non-payment, it can refer the matter to the new adjudication procedure.
Similarly, a sub-contractor at any level must pay its sub-contractors within 7 days of receiving payment unless it issues a notice of non-payment which can be disputed by the sub-subcontractor and referred to the new adjudication procedure.
DISPUTE RESOLUTION PROCESS
Although the practical effects remain to be seen, the legislature appears to be trying to institute a “pay now, fight later” dispute process. It is designed to provide quick and binding decisions in a hope to minimize project delays and exchange money promptly. The new dispute resolution process will act as an interim process that can be challenged or re-litigated in court or arbitration at a later date.
To initiate the dispute resolution process, a contractor or sub-contractor must deliver a “notice of adjudication” that sets out: (1) the names and addresses of the parties; (2) a description of the issue; (3) how you want the issue resolved; and (4) the name of the person you want to adjudicate the issue. All contractors will have access to a special list of approved adjudicators.
Once an adjudicator has been chosen or appointed, the party who initiated the dispute resolution process has 5 days to provide the adjudicator with the documents it will rely on for the adjudication.
The adjudication will follow the procedure specified in the contract so long as it complies with the Construction Act. If the contract is silent or if the contract does not comply with the Construction Act, the adjudicator has wide-ranging powers to solve the dispute. The adjudicator can request additional documents, conduct an on-site visit, obtain the assistance of experts, and conduct the process in the manner that he or she deems appropriate in the circumstances.
Within 30 days of receiving all the documents sent by the party who started the process, the adjudicator must render a decision. However, the adjudicator can request a 14-day extension. This means that from the date a party delivers a notice of adjudication, the longest it will take to get a binding decision is 60 days.
Once a decision by the adjudicator is made, the party required to pay has 10 days to do so.
All parties involved in a current construction project should be aware of which legislation applies to them.
A contract for improvement entered into or a procurement process (which includes Requests for Quotations, Proposals and Tenders) issued before July 1, 2018 will be governed strictly by the old Construction Lien Act.
A contract for improvement entered into or a procurement process issued after July 1, 2018 but before October 1, 2019, will be governed by the new Construction Act’s lien modernization provisions, but the new prompt payment and adjudication regimes will not apply to such a contract.
A contract for improvement entered into or a procurement process is issued after October 1, 2019, will be governed solely by the new Construction Act.
Whether you are an owner, a contractor, or a sub-contractor, the Construction Act amendments will impact all parties to a construction project. It is difficult to say whether the amendments to the Act will be effective as the practical effects will depend on the quality of the adjudicators available. The adjudicators may be lawyers, architects, engineers, or other professionals in the construction industry. Their decisions are binding. They can be enforced just like a court order.
How can you prepare?
- Determine whether the new Construction Act applies to your projects (in full or in part).
- Determine whether your document management systems are accurate, organized, up-to-date, and easily accessible. A company who can quickly retrieve the important documents will have an advantage. Companies who don’t run the risk of missing a date and losing the dispute.
- Thoroughly review all contracts and consider what type of procedure best suits your interests in the event of a dispute when negotiating a contract.
This is only a brief overview of some of the many changes that are already upon you and soon to be mandatory.
Cheadles LLP has a long history of solving construction law industry issues for our clients. We provide services in the following areas: contract drafting and review, financings, liens, litigation, collections, and defending corporations who are charged with regulatory and quasi-criminal accusations. We take pride in the timely, practical and cost-effective advice we provide to our owner, contractor, and sub-contractor clients.
For more information about the new changes to the Construction Act or any other Construction Law issue, visit www.cheadles.com.