The Ontario construction industry is bracing for considerable change following the introduction of legislation intended to ensure contractors and tradespeople are paid in a timely manner.
A wide-ranging update to the Construction Lien Act, the first since 1983, moved through first reading in the Ontario legislature on May 31. If passed, the bill would change how both private and public construction contracts are managed, introducing new dispute resolution mechanisms and putting limits on how long it takes to pay contractors.
Under the proposed legislation, owners of both public and private construction projects would be required to pay their general contractors within 28 days of receiving an invoice for certified work. General contractors would have a further seven days to pay their own trade contractors.
The legislation is "a much anticipated relief," said John Blair, executive director of the Ontario Masonry Contractors' Association. As it stands, Ontario trade contractors have to wait an average of 70 days for payment after filing invoices, Mr. Blair said.
"The period between invoicing and payment has stretched out to such an extent that it's untenable for trade contractors to operate a business," he said. "Are you going to invest in your business, hire a new person, take on an apprentice when you don't know when you're going to get paid?"
"For the construction industry, the bill is critical," said Richard Wong, who leads the construction group at law firm Osler Hoskin & Harcourt LLP. "For the tens of thousands of people who are involved in the subcontract level of the community, the bill is great news because it really cuts the logjam of payments that the industry is currently suffering from."
Project developers, however, "will have to give due consideration to the impact of the bill, and re-evaluate some of the commercial positions they have taken," Mr. Wong added.
The proposed legislation also changes how payment disputes are resolved. Rather than relying on lawsuits, disputes would be assessed by third-party adjudicators. A similar system already exists for construction projects in Britain.
"Their experience is very positive in that the vast majority of matters no longer make their way into the public court system," Mr. Wong said. He did caution, however, that adjudication can benefit contractors over owners, because "the contractor will have more time to prepare than the owner has to respond."
This isn't the first push for prompt-payment legislation in Ontario. A 2013 private member's bill sought to regulate payment between owners, contractors and subcontractors, although it died amid owner concerns about their ability to negotiate payment contracts. In 2015, the Government of Ontario hired two consultants to come up with recommendations that would be suitable to owners as well as contractors.
"We made sure everybody was at the table and understood exactly what these changes mean," said Ontario Attorney-General Yasir Naqvi, who is shepherding the bill through the legislature.
Because of the broader scope, the new legislation is getting less push-back from owners. But organizations such as the Association of Municipalities of Ontario (AMO) and the Residential Construction Council of Ontario still see reasons for concern.
"The most problematic issue that remains for municipal governments is the proposed timelines for owners' payment in 28 days," said Monika Turner, policy director for the AMO. "Municipal governments and other public and private-sector owners are looking for payment deadlines that incorporate time to ensure that work is certified to be correct."
Richard Lyall, president of RESCON, was more blunt. "It seems like a solution looking for a problem," he said. "The biggest problem is supplying enough housing. We have builders who can't get enough trades to actually do the work. In that market, not paying your trades in a timely manner doesn't work."
If passed, the Ontario bill would be the first in a nascent prompt-payment movement in the construction industry developing across the country. At the federal level, the Senate recently passed a bill to mandate prompt payment for contractors working on federally funded projects.
"Canada is the outlier here. Pretty much every state, including the federal government in the United States, has prompt-payment legislation. The U.K. has it, Ireland, New Zealand, Australia," said Conservative Senator Don Plett, a former trade contractor himself, who introduced the Senate bill. "The main change is the rights I have as a trade contractor to pull [out of] a job if I'm not being paid for work that the engineer and the architect have certified."
The Senate bill has been sent to the House of Commons, and Mr. Plett expects it to be debated in the fall. In Ontario, Mr. Naqvi says his government's legislation will move to second reading in September.