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Recap of Changes to Ontario’s Construction Lien Act

Posted on October 14, 2019 by - Mechanic's Liens & Bond Claims

Recap of Changes to Ontario’s Construction Lien Act

Over the last two years we have discussed the changes to Ontario’s Construction Lien Act. Now, with all changes in force, here’s a breakdown of what you should know.

More Time to File a Lien

The first wave of changes went into effect in July 2018 and included changes to the deadline calculations for the filing of a mechanic’s lien or a public improvement lien.

  • File the lien within 60 days from last furnishing materials or services, but within 60 days from the earlier of publication of the certificate or declaration of substantial performance, completion, abandonment or termination of the contract. (Increased from 45 days)
  • File suit to enforce the lien within 90 days from the period in which the lien must be filed. (Increased from 45 days)

The Ontario legislature had earlier provided clarification on whether contracts would fall under old statute or new statute. Would-be-claimants would follow old statute if:

  1. The contract/improvement was entered prior to 7/1/18
  2. Procurement process began prior to 7/1/18
  3. Project is a leasehold interest & the lease was in effect prior to 7/1/18

Essentially, the statutory provisions that became effective 7/1/18 would apply if the contract and procurement process were initiated on or after 7/1/18.

If you aren’t sure whether events took place on or after July 1, 2018, follow the old statute; be conservative in calculating your deadlines. You don’t want to rely on the new 60-day deadline and later find the general contract or procurement began prior to 7/1/18 and that your lien rights should have been secured by day 45. It is certainly better to file a lien early than file a late lien & risk it being unenforceable.

Also of note, as of October 1, 2019, the public improvement lien can no longer be filed against the property of a municipality.  Instead, the public lien will attach to the funds owed by the municipality to the prime contractor.

Requirement for Payment Bonds on Public Projects

While the threshold established for requiring a payment bond on a public project is large ($500,000.00), Ontario statute, effective July 1, 2018, requires the prime contractor to obtain a labour and material payment bond.  A claim must be made within 120 days from last furnishing materials and services, and suit must be filed within 1 year from completion of the project.

All New Adjudication aka Dispute Resolution

Effective for projects procured or entered into on or after October 1, 2019, adjudication is a rapid construction dispute interim resolution process to avoid payment issues that may otherwise result in project delay.

Adjudication is subject to the procedures set out in the contract or subcontract, if they comply with statute.  The party who wishes to refer a dispute to adjudication must serve a written notice of adjudication on the other party and then request adjudication from the Authorized Nominating Authority.  The legislation defines the matters that may be adjudicated as:

  • The valuation of services or materials provided under the contract
  • Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
  • Disputes that are the subject of a notice of non-payment
  • Amounts retained / set-off
  • Non-payment of holdback
  • Any other matter that the parties to the adjudication agree to or that may be prescribed

Hooray for Prompt Pay

Also effective for projects procured and entered into on or after October 1, 2019, and applying to both private and public projects, prompt payment rules will require payment to be made by the owner within 28 days from submission of a proper invoice.

A proper invoice is a written bill or other request for payment in respect of an improvement under a contract between the owner and the contractor, and it is to contain specific information as outlined by the Act or as required by the contract.  Failure to pay the invoice within the stated period will result in an automatic accrual of interest from the date the invoice was to have been paid.

The general contractor must pay the subcontractor within 7 days from receipt of payment from the owner.  And, all parties in the contractual chain below the general contractor must make payment within 7 days from receipt of payment.

If the owner is not going to make payment within 28 days from receipt of a proper invoice, the owner must submit a notice of non-payment to the general contractor within 14 days after receiving the proper invoice.  Similarly, parties below the owner in the contractual chain must submit a notice of non-payment within 7 days from receipt of a notice of non-payment.  The notice of non-payment must provide the reason for non-payment and the amount of any dispute.

Condominium Act Meets Construction Act in Ontario

Posted on April 26, 2019 by - In Other Commercial Credit News

Condominium Act Meets Construction Act in Ontario

Ontario’s Construction Act has been a prevalent topic throughout the last year, and with the second wave of amendments rolling out later this year, the conversation isn’t over! Let’s continue our Ontario conversation today with a quick review of the intersection of Ontario’s Condominium Act and its Construction Act.

In Condominium Construction in Ontario? Unique Challenges Ahead, authors Michael Swartz and Jeff Scorgie, explain how land is held under the Condominium Act and the difference between liening a single condominium unit versus a common area.

Ontario Has Condominium Corporations

Under Ontario’s Condominium Act, when a condominium corporation is registered, the property is comprised of two different types: units and common elements.

Units are typically the individual housing space, and according to authors may also include “…other non-residential types of “units” such as parking spaces or storage lockers. In either event, whether residential or non-residential, each “unit” is assigned its own distinct PIN and is owned or leased exclusively by an individual owner.”

Whereas common elements are any space except the individual units.

“…such as landscaped areas, parking lots, guest suites, recreational facilities, hallways, elevators and foyers… What is important to understand is that the “comment elements” of a condominium are “owned” by all of the units on an undivided share basis.”

Improving a Unit?

It’s imperative to only lien the property improved, therefore, if you furnished to the improvement of a unit, and you are unpaid for furnishings, your lien should be filed on the individual unit. Each unit is issued a parcel identification number (PIN), which identifies the parcel of land and its owner.

Improving a Common Element?

Unlike individual units, the common elements of a condominium do not have PINs. Let’s say you provide carpeting for the building hallways, outside of the individual units. If you are unpaid for the carpeting, your lien won’t be filed against one unit; rather it will be filed against all.

In fact, according to authors, “registering a lien against the common elements requires a lien claimant to list all of the units in the “Properties” section of the claim for lien—thereby liening each unit in the condominium for its proportionate share in the common elements.”

Who Will You Notify of the Lien?

When filing a lien against a single unit, you would notify the property owner. When filing a lien against a common element, you would notify the condominium corporation and ALL unit owners. In an example provided by authors, if the condominium has 200 units with 200 different owners, you must notify all 200 owners. This means you must identify the owners, which let’s face it, could be quite costly (massive title work!).

OK, so what happens if you lien the common elements and individuals want to pay you to have the lien removed from their units? I’ll defer to the experts:

“… under the new Construction Act, an individual unit owner (or an owner of a CEC) can make a motion to court to vacate the registration of the lien as against their unit…. it poses some interesting practical questions for the lien claimant and the other parties in the litigation.  Specifically, if many unit owners vacate a portion of the lien from their individual unit, it could become difficult to track who has paid what amounts into court to clear title.”

My Advice

If you are liening a common element, hire a construction-oriented attorney. You need a legal professional familiar with the law(s) and who can manage payments on your behalf. Don’t try to go it alone!

Adjudication and Ontario’s Construction Lien Act

Posted on June 22, 2018 by - In Other Commercial Credit News

Adjudication and Ontario’s Construction Lien Act

As you are likely aware, the first wave of amendments to Ontario’s Construction Lien Act go into effect in July 2018 and the second wave debut October 2019. We’ve released several blog posts and a whitepaper on the amendments, which can be read here, and in today’s post we are going to continue the discussion on adjudication.

What is Adjudication? Like Arbitration… Only Different

Alike, yet different. Adjudication and arbitration are similar, in that the disputing parties agree to seek resolution from an impartial third party. But, there are some differences.

One difference? Time. Arbitration can go on for quite some time, but adjudication has strict time provisions.

According to an article by Sahil Shoor and Neil S. Abbott of Gowling WLG, the adjudicator has 30 days from receipt of necessary documentation to render a decision. If, after 30 days, the adjudicator needs more time, an additional 14 days can be granted to the adjudicator by the Authority.

“Within five days of the selection of the adjudicator the party who started the adjudication must provide a copy of the contract in question, and any documents the party intends to rely on to the adjudicator. The adjudicator must release his/her written decision within 30 days of receiving the documents. The adjudicator can request up to 14 additional days, but the adjudicator’s request can be refused by either party.”

Not only are the timing provisions strict, the decision made through adjudication is enforceable by the courts. If adjudication has been requested, it will extend the lien deadline to whichever is later, the standard lien filing period or 45 days from the date the required documentation is provided to the adjudicator.

The Powers that Be

In an earlier post we reviewed who can be an adjudicator but didn’t go into much detail on the powers held by the adjudicator. In their article, Shoor and Abbott, provide a healthy list of powers, though last on the list pretty much sums it up:

  • Make directions respecting the conduct of the adjudication.
  • Take the initiative in ascertaining the relevant facts and law.
  • Draw inferences based on the conduct of the parties to adjudication.
  • Conduct an onsite inspection.
  • Obtain the assistance of a merchant accountant, actuary, building contractor, architect, engineer, or other person in such a way as the adjudicator considers fit to enable him or her to determine better any matter of fact in question. The adjudicator may fix the remuneration of the expert and who will pay it.
  • Make a determination of the adjudication.
  • Any other power that may be prescribed.

What Can be Adjudicated?

The legislation defines the matters that may be adjudicated as the valuation of services or materials provided under the contract, payment under the contract including proposed change order(s), disputes that are the subject of a notice of non-payment, retainage/holdback, and any other matter that the parties to the adjudication agree to or that may be prescribed.

It’s important to note, only one issue can be adjudicated at a time. However, if a party wishes to consolidate two or more issues under one adjudication, the party can submit the consolidation request via notification to all parties involved, including the adjudicator.

Commence Adjudication

Much like the mechanic’s lien process, there are steps to commencing adjudication. Shoor and Abbott advise adjudication can only take place between parties within direct contract of one another, adjudication must start prior to contract completion, and the party requesting adjudication must provide notice to other parties.

What should be included in the notice? According to Shoor and Abbott, the notice should include: “names and addresses of the parties; nature and a brief description of the dispute, including details respecting when and how it arose; nature of the redress sought; and name of a proposed adjudicator to conduct the adjudication.”

In addition to notifying other parties, the requesting party should also “provide a copy of the notice in electronic format to the Authority.” – Adjudications Under Part II.1 of the Act, O Reg 306/18

Can You Say Adjudication Three Times Fast?

Shew — I don’t know that I’ve used so many variations of “adjudicate” in one post! But, it’s necessary because adjudication is an important aspect of the amendments to Ontario’s Construction Lien Act. Adjudication will be an option for contracts entered on or after October 1, 2019.

If all goes to plan, adjudication should prove to be a quick, beneficial dispute resolution process!

New Regulations under Ontario’s Construction Lien Act

Posted on June 4, 2018 by - Legislative Updates & News Alerts, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

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!

New Legislation for Ontario’s Construction Act

Posted on April 9, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Broad Changes for Ontario’s Construction Act Will Include an Extension to the Lien Filing Period

Today’s contribution is authored by Ms. Nancy Kennerly

Broad changes are ahead for Ontario’s Construction Act. In today’s we post, we will take a high-level look at some key changes including the extension of the lien & suit filing periods, and prompt pay guidelines.

NCS will release a white paper in the coming weeks, to provide  additional details on these and other changes, including holdback requirements and construction trusts.

The Review Is Complete, Now to Implement

The review of Ontario’s Construction Lien Act (Act) began in February 2015 and in August 2016, the review committee presented its recommendations for improving the Act (we discussed the review in the NCS white paper, Highlights of the Recent Review of Ontario’s Construction Lien Act).

After the in-depth study and consultation process, broad changes are being made to the Ontario statute through Bill 142. While some housekeeping changes took place on December 12, 2017, the substantive amendments will become effective July 1, 2018 and October 1, 2019.

High-Level Look at Some Key Changes Effective July 1, 2018

Construction Lien & Suit to Enforce Lien | Deadline Extended

The deadlines for the filing of a lien and suit to enforce a lien have both been extended.

Current:

– File the lien within 45 days from last furnishing materials or services, but within 45 days from the earlier of publication of the certificate or declaration of substantial performance, or completion or abandonment of the contract.

– File suit to enforce the lien within 45 days from the period in which the lien must be filed.

Effective 7/1/18:

– File the lien within 60 days from last furnishing materials or services, but within 60 days from the earlier of publication of the certificate or declaration of substantial performance, completion, abandonment or termination of the contract.

– File suit to enforce the lien within 90 days from the period in which the lien must be filed.

Lien on Leasehold Interest

Currently, where the lien attaches to a leasehold interest, a claimant may serve notice upon the fee owner at least 15 days prior to first furnishing materials or services. This notice will allow a lien against the fee interest unless the fee owner responds with a notice of non-responsibility within 15 days from receipt of the claimant’s notice.

Under the new legislation, the claimant’s written notice of improvements is repealed, and the landlord/fee owner will no longer be able to disclaim responsibility upon receipt of the notice.

Instead, if the interest of the owner to which a lien attaches is leasehold, and if payment for all or part of the improvement is accounted for under the terms of the lease or any renewal of it, or under any agreement to which the landlord is a party that is connected to the lease, the landlord’s interest is also subject to the lien, to the extent of 10% of the amount of such payment.

Labor & Material Payment Bond and Performance Bond

On public contracts, a Labor & Material Payment Bond and Performance Bond will be required of contractors.  The surety must be licensed under the Insurance Act and the bond must cover at least 50% of the contract price or other percentage of the contract price as may be prescribed.  Further, the bond must extend protection to subcontractors and persons supplying labor or material to the project.

Claims against the bond must be made in accordance with the terms of the bond.  A best practice would be to obtain a copy of the payment bond at the start of a public project.

Changes Effective October 1, 2019

Prompt Payment

In 2013, Bill 69 – Prompt Payment Act debuted, though it struggled to get beyond a standard review. Fortunately, under Ontario’s changes, Bill 69 can rest easy.

Applying to both private and public projects, prompt payment rules will require payment to be made by the owner within 28 days from submission of a proper invoice.

A proper invoice is a written bill or other request for payment in respect of an improvement under a contract between the owner and the contractor, and it is to contain specific information as outlined by the Act or as required by the contract.  Failure to pay the invoice within the stated period will result in an automatic accrual of interest from the date the invoice was to have been paid.

The general contractor must pay the subcontractor within 7 days from receipt of payment from the owner.  And, all parties in the contractual chain below the general contractor must make payment within 7 days from receipt of payment.

If the owner is not going to make payment within 28 days from receipt of a proper invoice, the owner must submit a notice of non-payment to the general contractor.  Similarly, parties below the owner in the contractual chain must submit a notice of non-payment within 7 days from receipt of a notice of non-payment.  The notice of non-payment must provide the reason for non-payment and the amount of any dispute.

Adjudication

Adjudication is a rapid construction dispute interim resolution process to avoid payment issues that may otherwise result in project delay.  Adjudication is subject to the procedures set out in the contract or subcontract, if they are in compliance with the statute.  The party who wishes to refer a dispute to adjudication must serve a written notice of adjudication on the other party, and then request adjudication from the Authorized Nominating Authority.  The legislation defines the matters that may be adjudicated as:

– The valuation of services or materials provided under the contract

– Payment under the contract including a proposed change order

– Disputes that are the subject of a notice of non-payment

– Amounts retained / set-off

– Non-payment of holdback

– Any other matter that the parties to the adjudication agree to or that may be prescribed

It’s Only the Beginning

It’s important to understand that any time statute changes, there is an adjustment period. Some adjustments will happen during initial implementation, while others may not surface until a dispute reaches the courts a few years from now.

While there may be additional changes as we move forward, it is likely these changes will be minor. If you have questions regarding the changes in Ontario or how your rights may be impacted, please don’t hesitate to contact NCS.

Ontario Construction Lien Act – Bonds

Posted on November 15, 2016 by - Mechanic's Liens & Bond Claims

The Review of Ontario’s Construction Lien Act: Surety Bonds

We’ve previously discussed the review of Ontario’s Construction Lien Act and today we’d like to briefly review the recommendations for how surety bonds could be handled under the Act.

Generally, there is no statutory provision requiring a payment bond be issued for a public project.

“Currently, statutory mandatory bond regimes for public projects only exist in the U.S. but the use of payment bonds for the protection of subcontractors and suppliers is common in Canada. Fundamentally, payment bonds are currently a North American phenomenon. However, mandatory payment bonds have been considered in some other jurisdictions.” – Chapter 10: Surety Bonds, 2.2 Mandatory Surety Bonds

Although not required, frequently public projects are bonded, which provides those furnishing to public projects the ability to secure rights in the event they are not paid. But what happens to those who furnish to a project that isn’t bonded? How can they secure their right to get paid?

Right of Recourse: Public Projects in Ontario

As mentioned above, if a public project is bonded, then claimants have an opportunity to make a claim against the bond. You should review the terms of the bond to determine the deadline for claims, but frequently the deadline is within 120 days from last furnishing materials or services.

Claimants may also have the right to a Public Improvement Lien (aka lien on funds).

What Changes Would the Review Group Like to See

The committee reviewing the Act partnered with the Surety Association of Canada and came up with the greatest recommendation: a requirement for bonds on all public projects!

  • The Act should be amended to require broad form surety bonds to be issued for all public sector projects, the form of such surety bonds should be developed in consultation with the Surety Association of Canada, and once finalized they should become Forms under the Act.
  • The Act should be amended to require sureties to pay all undisputed amounts within a reasonable time from the receipt of a payment bond claim.
  • A Regulation to the Act should be promulgated to embody a surety claims handling protocol, and that such surety claims handling protocol be developed in consultation with the Surety Association of Canada.

As noted earlier, payment bonds are not required by statute right now. In the event a party is not paid and isn’t able to file a lien on funds, the only recourse available is to go after parties individually. A requirement for payment bonds would be great news for those furnishing to public projects.

Hopeful!

Again, a required payment bond is a recommendation from the committee reviewing the Act, it’s not actual legislation…yet. Stay tuned!

Canada: Provincial Construction & Your Payment Rights

Posted on October 11, 2019 by - In Other Commercial Credit News

Canada: Your Payment Rights on Provincial Construction Projects

If you are furnishing to a construction project in Canada, you follow steps to secure mechanic’s lien or bond claim rights, much like you would when furnishing to a project in the United States. Construction projects in Canada will likely fall in to one of three categories: private, provincial crown/government, or federal crown/government.

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

What is a Provincial Project?

A provincial project is the improvement of public works or building under formal contract made by the provincial government. The provincial government is the equivalent to state government in the U.S.; where the U.S. has 50 states, Canada has 13 provinces.

Often, construction claims on provincial projects are recovered via a Labour & Material Bond, which is a payment bond.

Labour & Material Bond: A surety bond, particularly on public projects, issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

Currently, only 2 provinces have payment bond requirements for provincial projects: New Brunswick and Ontario.

  • New Brunswick: On Crown Construction contracts of $500,000.00 or more, a bid bond and a payment bond will be required. On Crown Construction contracts less than $500,000.00, a bid bond and a payment bond may be required.
  • Ontario: generally, payment bonds are required for general contracts of $500,000.00 or more.

We are watching proposed legislation in other provinces where payment bonds may soon be statutorily required on provincial projects.

No Payment Bond? File a Public Works Act Claim

Different than a bond claim, a Public Works Act Claim (public improvement lien) is a claim served upon the provincial crown, in which the public entity may pay the claimant directly from funds owed to the prime contractor. The public improvement lien is available in the following provinces:

  • Alberta
  • Manitoba
  • New Brunswick
  • Newfoundland
  • Nova Scotia
  • Ontario
  • Saskatchewan

How Can the Public Works Act / Public Improvement Lien Help in the Event of Bankruptcy?

In his article, Doing Work on a Provincial Project? Protect Yourself with a Public Works Act Claim, author Anthony Burden reviewed a recent case before the Alberta Bankruptcy Court. You can read his article in full for the details, but ultimately the bankruptcy court declared a claimant’s Public Works Act claim took priority over unsecured claims and the claimant received payment in full.

“The Court lifted the automatic stay to allow funds to be paid out of Court to… its sub-subcontractors, in the amount of their proven claims. This was done without a formal Order approving the BIA Proposal by [debtor]. Despite [debtor’s] insolvency, its sub-subcontractors were able to receive full payment for their debt claims and were not required to share pro-rata.”