The Construction Lien Act (CLA) regulates the way payments are made in the construction industry. It provides assurance to contractors and subcontractors who have provided services and/or materials to the improvement of real property that they will be paid.
Under the proposed legislation, there are two important changes that will support both workers and businesses in the construction industry:
- A new prompt payment system with clear payment timelines for all parties involved in a construction project will be established.
- Any disputes that would normally delay payment could be addressed through a new adjudicative process outside of court.
New Prompt Payment System
Under the proposed changes, the owner and the general contractor would be able to agree to a deadline to submit an invoice (on agreed upon timelines or monthly). Upon receipt of the invoice, the owner has to pay the general contractor within 28 days.
After the general contractor receives payment, they would then have to pay their subcontractors within seven days. Subcontractors would be required to pay other subcontractors within seven days of receiving payment, and so on.
In cases where there is a dispute (i.e. amount owed or quality of work), owners are able to deliver a notice of non-payment within 14 days of receiving the invoice. Successive payers must then deliver a notice of non-payment within seven days. Any undisputed amounts must be paid.
Contractors and subcontractors will receive interest on late payments and would also be able to suspend work on a project if the matter is heard by an adjudicator and the payer does not comply with the decision.
New Adjudicative Process
To ensure contractors, subcontractors and workers are paid in a timely way, an adjudication process will occur. After adjudication, if the party owing money refuses to comply, the party eligible for payment would be entitled to suspend further work under the new rules.
Adjudicators would be experts who have had extensive experience in the construction industry and have experience or training in dispute resolution.
Adjudicator’s decisions could not be appealed, but the decision could be challenged on the grounds of adjudicator bias or a decision on a matter other than the matter referred. If the parties are satisfied with the adjudicator’s decision, they may agree to treat the decision as final.
Below is a brief summary of the other proposed changes to the construction lien and holdback rules (as noted in the first reading on May 31, 2017):
- Specific bookkeeping requirements to protect subcontractors in the event of bankruptcy;
- Condominium unit owners will be allowed to remove liens from their unit (in relation to common elements);
- Expand and clarify the definition of “owner” , this would help in the areas of public projects that often have multiple owners;
- Extend existing timelines for contractors and subcontractors to file liens. Court actions from to start from 90 – 150 days. Allowing for more time to resolve disputes outside court;
- Holdbacks will be required to be paid once the timeline to file liens has passed. Providing certainty about when the holdback will be paid, allowing contractors and subcontractors to accept/plan for new work contracts;
- Surety bonding requirements on specific public sector projects to protect subcontractors and workers when the general contractor files for bankruptcy;
- Referral of construction lien claims under $25,000 to small claims court.
We commit to providing further updates as they occur. If you have questions about how this may impact your business, please contact your DJB accountant. For all legal matters, please contact your solicitor.
Article written by: Tom Sawchuk, CPA, CA
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