Everyone in the construction industry has been likely been inundated with notices and articles around the implementation of the new Construction Act and for good reason – the changes are sweeping and significant. The introduction of prompt payment measures and adjudication mechanisms has the potential to radically change the way money moves through construction projects in Ontario. And while these measures will not come into force until October 2019, stakeholders would be wise to start planning now. This is particularly true for smaller contractors and trades that lack the administrative and finance infrastructure of their larger counterparts.
The new provisions of the Construction Act are largely modelled on legislation from Great Britain, the Housing Grants, Construction and Regeneration Act (1996). The introduction of prompt payment and adjudication in the UK is widely held to have been very successful, so the UK seems like a useful place to look if we’re curious about the impact of its introduction here.
Doug Wass and Mark Lawrence of Macfarlanes LLP highlight the obvious challenges associated with moving from the current model of extensive surveys and general indifference to subcontractor invoices to one in which payment must be issued within 28 days. They also pick up on a less obvious issue: the need for businesses to invest in the administrative structures necessary to operate in a prompt payment environment. Trades and GCs alike will need to have sufficient staff, and internal processes, to ensure invoices are issued and evaluated in a timely manner, and that any responding notices go out in the prescribed timelines. Failure to do so could expose a contractor to an obligation to pay out sub-trades without having collected on its own invoice.
Matt Malloy of MCMS Ltd. offers insights on the scope of matters that can be dealt with in adjudication, as well as the phenomenal amount of material that can be produced by parties in only 30 days. The short timelines involved with an adjudication will present another interesting wrinkle for contractors and trades in Ontario, and there are serious questions about the power dynamics involved in this kind of scenario that need to be addressed. Where does the advantage lie – with a large corporation with significant internal resources that can be devoted to supporting a dispute, or with a smaller but perhaps more nimble trade that can plan a referral in advance and force its larger opponent to react on short notice?
Finally, for those interested in a long (but extremely useful) read, Rudiger Tscherning at the University of Alberta’s Faculty of Law has published an extensive discussion of the lessons Ontario can draw from the UK’s experience with adjudication. In addition to the idea of ‘adjudication by ambush’ set out above, he identifies issues with serial adjudications, late decisions, enforcing decisions and payment collection. A particularly interesting point is his admonition to avoid complicating the ‘rough and ready’ justice of adjudication with ‘procedural niceties’.
The introduction of prompt payment and adjudication in Ontario will present challenges and opportunities, but the latter will be more readily available to those companies that have the foresight to consider the implications of the changes and plan ahead.