NEWS

The Construction Act (Act) is an important piece of legislation that governs how payments are made in the construction industry. The Act also provides a degree of certainty to those that have contributed materials and services to improvements of real property that they will be compensated for their contribution.

The Act was last amended in 2017 – flowing from a 2016 expert report recommending amendments following a review and consultation process. The expert report also recommended a further independent review be conducted several years after the amendments came into force.

In March 2024, the Ministry of the Attorney General (MAG) retained Mr. Duncan Glaholt, a leading construction law expert, to conduct an independent review of the Act.

Mr. Glaholt met with industry stakeholders (including the OGCA) and invited submissions. The OGCA, acting through the Construction and Design Alliance of Ontario (CDAO), contributed to a submission providing Mr. Glaholt with recommendations and comments representing the views of the construction industry organizations representing thousands of individual stakeholders. The submission was prepared by Mr. Glenn Ackerley from Weir Foulds LLP.

Mr. Glaholt released his final report on October 30, 2024. The report includes a list of recommended amendments to the Act.

2024 Independent Review: UPDATING THE CONSTRUCTION ACT, (Full Report) is available here.

The following is a list of the issues addressed in the report and Mr. Glaholt’s recommendations.

1. Mandatory Release of Basic Holdback

Recommendations:

• Replace the current permissive scheme of annual/phased holdback release with a simple, annual mandatory scheme with the following essential elements:

1. Mandatory annual release of holdback by owner: For services and materials supplied in any given year, all basic statutory holdbacks retained by an owner shall be paid to the contractor following each anniversary of the date of execution of the contract, without setoff, provided that there are no preserved or perfected liens on the owner’s title in respect of the contract by the expiry of the notice period for annual release of holdback.
2. Mandatory annual payment of holdback by contractors and subcontractors: All basic statutory holdback received by a contractor or subcontractor must be paid to those from whom that holdback was kept, without setoff, within 14 days of receipt, if there are no preserved or perfected liens on title in respect of the subcontract.
3. All conforming payments discharge and satisfy all statutory obligations: All payments of basic statutory holdback made in compliance with the Act discharge and satisfy corresponding statutory holdback and trust obligations under the Act.

• Expand the ambit of statutory adjudication to encompass all disputes over the timing, amount, and payment of statutory holdback.

2. Non-Payment of Holdback

Recommendations:

• Enact provisions for the mandatory annual release of holdback, and repeal s. 27.1 of the Act.

3. Pre-Construction Lien for Design Professionals

Recommendations:

• Create a legal presumption in order to trigger lien rights that where the making of a planned improvement is not commenced, the supply of a design, plan, drawing or specification constitutes the supply of services to an improvement, subject to an owner proving that the services did not result in an enhancement in the value of land.
• Permit an owner or supplier of pre-construction design services to adjudicate any issue related to “enhancement to the value of the owner’s interest in the land”.

4. Access to Statutory Adjudication

Recommendations:

• Amend s. 13.5(1) to permit adjudication by any party to a contract or subcontract of any matter set out in the Regulations. Amend the regulations to include any issue arising under a contract or subcontract, and pertinent decisions under the Act itself.
• Amend s. 13.5(3) to permit adjudication to be commenced for a period of 90 days following the earliest of the date that a contract is completed, abandoned or terminated, and in the case of an adjudication under a subcontract, no later than 90 days after the date the subcontract is certified to be completed, or the date services or materials are last supplied to the improvement. It is not necessary that the adjudication be completed in that time frame, only that it be commenced within that time frame.
• Amend s. 13.5(4) to clarify the provisions relating to multiple disputes that can be referred to and included in a single adjudication.
• Amend s. 13.7(1) to require any party to a contract or subcontract who wishes to refer a dispute to adjudication to include in the notice of adjudication a true copy of the determination(s) in any previous adjudications in which it was involved on the same project.
• Amend s. 13.8(2) to permit the consolidation of multiple adjudications at the request of any party, with the concurrence of all adjudicators that may be involved in all adjudications that are to be consolidated. The choice of adjudicator for consolidated adjudications can be made by the parties or in the absence of agreement by ODACC.
• Amend s. 13.9 to permit the parties to agree on the appointment of any natural person who has completed ODACC training as a private adjudicator for any referred dispute, provided that the appointment is made in writing, signed by the parties and the proposed adjudicator, and discloses all commercial terms between the parties including provision for the payment by the parties of ODACC’s one-time administration charge for such private adjudications. The one-time administration fee should be recalibrated periodically as necessary to fairly compensate ODACC for the actual cost of administrative services to be provided together with reasonable recovery of overhead and profit.
• Amend s. 13.10 and s. 23 of O. Reg. 306/18 (Adjudications under Part II.1 of the Act) as necessary to require the adjudicator fee to be deposited within five days of a request by the ODACC, and for the fee to be the amount agreed by the parties and the adjudicator if there is one, or the estimate of ODACC in the absence of such an agreement. A corresponding amendment to s. 23 would permit an adjudicator to resign if the stipulated retainer has not been paid to ODACC within the relevant time period.
• Amend s. 13.12 to add to an adjudicator’s jurisdiction the right determine that adjudicator’s jurisdiction. Precedent language from the Arbitration Act, 1991 could be considered and adopted with any necessary changes.
• Amend the Act to add a “slip rule” like that found in the Arbitration Act 1991, with a very short time period, and adjust other time periods to accommodate this new period. Precedent language from the Arbitration Act, 1991 could be considered and adopted with any necessary changes.
• Amend s. 13.17 to add the words “or in respect of the adjudication” after the words “acted in respect of the improvement”.
• Amend the regulations to require ODACC to establish within one year of the regulation and to maintain thereafter a database of indexed, anonymized determinations accessible to any party to an adjudication, or any adjudicator conducting an adjudication, on a fee-per-use basis, with the fee set by ODACC independently.
• Amend any forms prescribed by regulation to conform to the above amendments.

5. Repeal subsection 34(10)

Recommendations:

• Repeal s. 34(10).

6. Proper versus “Improper” Invoicing

Recommendations:

• Replace s. 6.1 item #3 with some version of the words in the equivalent U.S. statute: “the contract number, or other authorization for the property delivered or services performed (including the order number and contract line-item number)”.
• Amend s. 6.1 item #7 to read “Any other information that may be reasonably requested as being an essential component of a payer’s accounts payable system”.
• Permit the discrete and summary adjudication of whether an invoice is a “proper invoice” under the Act, and as to the reasonableness of any imposed additional requirements under s. 6.1 item #7.
• Add a provision deeming an invoice to be a “proper invoice” within the meaning of the Act unless a payer receiving such an invoice identifies to the payee in writing satisfied and what is required to address the deficiency.
• Continue to consider the possible amendment of s. 1.1(5) of the Act to add Part I.1 of the Act in the case of AFP/P3 projects.

7. “Matter” versus “Dispute” in Statutory Adjudication

Recommendations:

• Amend s. 13.5(4) to replace the word “matter” with “dispute”.
• Amend the Act to permit any party, and not just a contractor, to require consolidation of related adjudications under s. 13.8(2) subject to the overriding discretion of the adjudicator.

8. Availability of Adjudication After Completion

Recommendations:

• See recommendation above in part 4.3 of this report.

9. Joinder of Lien Claims, Trust Claims, and Other Claims

Recommendations:

• Amend O. Reg. 302/18 (PROCEDURES FOR ACTIONS UNDER PART VIII) to expressly allow for the joinder of trust claims in lien actions, with discretion to the court to sever claims or require separate trials or procedures.
• Amend the statute and regulations as necessary to permit the adjudication of all claims brought under Part II of the Act.

10. Written Notice of Lien

Recommendations:

• Amend Form 1 to the Act to require a notifying party to clearly state the amount claimed that is holdback, and the amount claimed that is non-holdback.
• Maintain the Act’s present requirements for service but permit persons serving written notice of lien to serve a true copy of a preserved claim for lien in place of Form 1.
• Amend the Act and Regulations to permit issues about the validity of written notice of lien to be adjudicated.

11. Notice of Termination

Recommendations:

• Amend s. 31(6) so that lien periods commence on the date of publication of notice of termination of that contract.
• Amend the Act to require the notice to be published in a Construction Trade Newspaper within 7 calendar days of termination.

12. Motions Before Action Commenced

Recommendations:

• Subject to the Attorney General’s ongoing review of the Rules of Civil Procedure, amend either the Act or its regulations to include the equivalent of s. 67(6) of the pre-2017 statute.

13. Minor Errors, Irregularities

Recommendations:

• Amend clause 6(2)(b) to clarify that so long as an owner’s name is placed somewhere on a claim for lien, the minor errors rule in s. 6(1) applies.

14. Collaborative Contracting Bonds

Recommendations:

• Amend s. 85.1 and O. Reg. 304/18 (GENERAL) to permit the alternate forms of bonds.
• Empower working groups representing all interested stakeholders to develop alternative forms of bond to be adopted by regulation for use in such projects.

15. Limits of Bonds on Public Projects

Recommendations:

• In future, give further consideration to the proposal of providing public owners a choice between mandatory levels of bonding and the creation of a standing combined dispute board.

16. Subcontractor Rights under Labour and Material Payment Bond

Recommendations:

• Work with the Surety Association of Canada to amend the Form 31 bond to provide that a claimant need not comply with provisions of such legislation setting out steps by way of notice, registration or otherwise as might have been necessary to preserve or perfect any claim for lien or privilege which the claimant might have had.

17. Definition of “Price”

Recommendations:

• Amend subclause (a)(ii) of the definition of “price” in section 1 to include, for prescribed classes of contracts, “price” calculated in accordance with the regulations.
• Create working groups to propose regulations for industry-approved formulae for the calculation of “price” in the case of specialized or collaborative forms of procurement such as AFP/P3, IPD, PDB.

18. Multiple Improvements

Recommendations:

• Amend s. 2(4) so that the rule applies for the purposes of the entire Act.
• Amend s. 39 to permit subcontractors to demand information from an owner or contractor at any time as to whether the contract provides more than one improvement is to be made under a single contract on lands that are not contiguous.

19. Publication in Construction Trade Newspaper

Recommendations:

• Designate by regulation a maximum of three “construction trade newspapers” for the purposes of the Act, beginning with: 1) The Daily Commercial News, 2) Link2Build, and 3) the Ontario Construction News.
• Provide designation for a fixed period and review and renew designations, or add designations, as may be necessary to serve the industry.
• Continue to explore the idea of a province-wide, project-specific, notice board.

20. Transitional Rules

Recommendations:

• The transitional rules for any amendments implementing the 2024 OCAR recommendations should reflect the following principles:

1. All amendments should apply to new contracts and subcontracts entered into on or after the day the amendments come into force.
2. For pre-existing contracts and subcontracts, consideration should be given to whether a one-year transition is needed for each amendment, or alternatively whether the amendments can be made to apply to these pre-existing contracts and subcontracts as of the day the amendments come into force. Regardless, this should be designed so as not to impact the existing transition rules in s. 87.3 of the Act.

• Continue to exclude, by regulation and appropriate language in the statute where necessary, any existing AFP/P3 projects whose financial model is fundamentally incompatible with prompt payment. These will be few indeed.

The government introduced the corresponding legislative amendments to the Construction Act to implement the key recommendations in Mr. Galholt’s report. Proposed Amendments to the Construction Act under Schedule 4 of Bill 216, Building Ontario For You Act (Budget Measures), 2024 received Royal Assent on November 6th, and will come into effect upon proclamation.

Should you have any questions, or require any further assistance, please contact Andrew Sampogna at andrew@ogca.ca.