New Regulations under Ontario’s Construction Lien Act

New Regulations under Ontario’s Construction Lien Act

Ontario’s Construction Lien Act is set for its first wave of statutory changes which go into effect July 1, 2018. Ahead of these changes, Ontario’s legislature has released new regulations to help clarify the statutory changes.

Adjudication: Who? How?

Up first is Ontario Regulation 306/18, Adjudications under Part II.1 of The Act (O Reg 306/18). As we’ve previously discussed, adjudication is a “rapid construction dispute interim resolution process to avoid payment issues that may otherwise result in project delay.”

Adjudication may be an excellent solution for parties facing clashes over a change in contract valuation, payment issues including change orders, and holdback/retainage disputes. But, who will be the adjudicators? Will the adjudicators understand the construction industry?  Who will manage the adjudication process?

O Reg 306/18, states a person interested in adjudicating, must meet the following requirements:

1. The individual has, in the Authority’s view, at least 10 years of relevant working experience in the construction industry.
2. The individual has successfully completed the training programs provided under clause 8 (a), subject to subsection (4) of this section.
3. The individual is not an undischarged bankrupt.
4. The individual has not been convicted of an indictable offence in Canada or of a comparable offence outside Canada.
5. The individual pays to the Authority any applicable fees for training and qualification as an adjudicator listed in the schedule of fees under section 9.
6. The individual agrees in writing to abide by the requirements for holders of certificates set out in section 4.

According to New Regulations Add Detail to the Construction Lien Amendment Act from McMillan LLP, relevant work experience, may include “… accountants, architects, engineers, quantity surveyors, project managers, arbitrators and lawyers.” And, further adds it will be up to the Authority to determine that “…other types of construction industry experience would be sufficient to qualify as an adjudicator.”

There were concerns that adjudicators would not be ready to preside over disputes by the October 2019 release of the statute amendments, based on the training requirement outlined under O Reg 306/18. However, McMillan LLP, indicates the Authority may waive the training requirement for those with sufficient work experience, which would mean some folks can adjudicate right away.

In general, the Authority (the “Authorized Nominating Authority,” which has yet to be determined), will have seemingly broad control over adjudicators. O Reg 306/18 indicates the Authority will be able to issue and revoke a person’s certificate to adjudicate, create & maintain an adjudicator registry and create/maintain training programs, amongst several other responsibilities.

Forms: Which is Which?

Ontario Regulation 303/18 is fairly straightforward. It is simply a cross reference of the various forms and the corresponding statute. For example, “A notice to a contractor under section 18 of the Act may be in Form 2.” You can view the list of respective forms here.

Who Does What When?

Ontario Regulation 302/18 Procedures for Actions provides further detail on the procedure for lien claims. Details cover the statement of claim, joinder actions, third party claims as well as the process for consolidating legal actions and trial or settlement meetings.

Surety Bonds, Prompt Payment and Holdbacks

Ontario Regulation 304/18 General (O Reg 304/18) offers additional clarity on bonds, prompt payment and retention. O Reg 304/18 states the minimum surety bond coverage is 50% of the contract price, if the contract is under $100,000,000 and $50,000,000 if the contract is over $100,000,000. O Reg 304/18 also clarifies that  public contracts under $500,000 are exempt from the bonding requirements.

Holdback is defined as 10% of the value of the services or materials supplied under a contract or subcontract required to be withheld from payment.  The new legislation calls for a mandatory holdback release (subject to specific set-off notices) and provides for annual, phased or segmented releases of holdback on lengthy projects.  O Reg 304/18 clarifies that a contract must be $10,000,000 or more to qualify for the annual or phased holdbacks.

Additionally, O Reg 304/18 states the owner must publish a notice of non-payment of the holdback and within three days of that notice publication, the owner must notify the contractor. The same requirements would apply to a general contractor if it is withholding funds from its subcontractors/suppliers.

From McMillan LP –

“CLAA section 27.1 provides that an owner may refuse to pay some or all of the holdback owing to a contractor in certain circumstances. The owner must, among other things, publish a notice of non-payment in a manner set out in the regulations and notify the contractor in accordance with the regulations. The General Regulation provides that the notice of non-payment must be published in a trade newspaper and that the contractor must be notified of the publication within three days of the publication.”

Publishing this information via a “trade newspaper” doesn’t apply solely to non-payment of holdback. This will also apply to the notice of contract termination, the certificate of substantial performance or declaration of substantial performance, and the notice of intention to register condominium. What is a trade newspaper?

O Reg 304/18 defines a construction trade newspaper as a newspaper:

(a) that is published either in paper format with circulation generally throughout Ontario or in electronic format in Ontario,

(b) that is published at least daily on all days other than Saturdays and holidays,

(c) in which calls for tender on construction contracts are customarily published, and

(d) that is primarily devoted to the publication of matters of concern to the construction industry.

Perhaps a future enhancement will be a registry like Utah & Pennsylvania? Time will tell!

When Will Amendments & Regulations Go into Effect?

While some housekeeping changes took place on December 12, 2017, the substantive amendments will become effective as follows:

• July 1, 2018*:
  • Modernization of the Statute
  • Updates to the Holdback Rules
• October 1, 2019:
  • Prompt Payment
  • Adjudication, Regulations and Forms
  • Liens Against Municipalities

According to Final Construction Act Regulations Issued, published by Gowling WLG, the effective dates will coincide with the implementation of the statute changes.

“…existing rules under the existing legislation (i.e. prior to the amendments) will apply to an improvement if:

• • a contract for the improvement is entered into before the date the amendments come into effect (regardless of when any subcontract under the contract is entered into);
  • a procurement process for the improvement (including a request for qualifications, a request for proposals, or a call for tenders) is commenced by the owner of the premises before the date the amendments come into effect; or
  • the premises is subject to a leasehold interest, and the lease is first entered into before the date the amendments come into effect.

The amended legislation will apply to contracts entered into and procurement processes commenced on, or after, the date the applicable amendments come into effects.”

Still, It’s Just the Beginning

As you may have guessed, implementing changes is rarely easy. We will see further clarification and slight changes as this process moves along. Stay tuned!