Construction Act – Prompt Payment Provisions
In 2019, a new “prompt payment” regime in Ontario’s construction industry came into force following significant amendments to the Construction Act. This regime creates a chain of strict timelines to ensure that each participant in a construction project is paid in a timely and predictable fashion, and to prevent disputes from delaying a project.
Timelines for Payment
Payment deadlines start ticking when an owner receives a proper invoice from a contractor. The Construction Act lists the information that must be contained in an invoice in order to qualify as a “proper” invoice, including:
- The contractor’s name and address.
- The date of the proper invoice and the period during which the services or materials were supplied.
- Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied.
- A description, including quantity where appropriate, of the services or materials that were supplied.
- The amount payable for the services or materials that were supplied, and the payment terms.
- The name, title, telephone number and mailing address of the person to whom payment is to be sent.
Once an owner receives a proper invoice, they have 28 days to pay the invoice in full. Once a contractor receives payment from the owner, they have 7 days to pay subcontractors in full. Once a subcontractor receives payment from the contractor, they have 7 days to pay sub-subcontractors in full, and so on.
Notice of Non-Payment
If any party does not intend to pay another party what has been properly invoiced, they may deliver a Notice of Non-Payment before the deadline for payment has expired. The Notice of Non-Payment must be in the form prescribed by the Act, and it must detail the amount that will not be paid and the reasons for nonpayment. The party must then still pay any amount that is not subject to their objection in the Notice of Non-Payment.
In the past, it was common for construction contracts to include a provision stating that a contractor would not have to pay a subcontractor until the contractor had themselves been paid by the owner – called “pay when paid” clauses. The new prompt payment regime somewhat incorporates this approach by allowing a contractor to deliver a Notice of Non-Payment to a subcontractor explaining that they will not be paid in full as a result of the owner’s non-payment of the contractor.
If a party does not comply with the prompt payment regime – by either paying within the specified time or by delivering a Notice of Non-Payment – then that party becomes subject to mandatory non-waivable interest on the amount they owe.
If a party is not paid, or if they receive a Notice of Non-Payment and disagree with the reasons for non-payment, then they may have the matter referred to interim adjudication. A contractor that delivers a Notice of Non-Payment to a subcontractor because the contractor itself has not been paid by the owner (a “pay when paid” nonpayment) must also undertake to commence an adjudication within twenty-one days of delivery of the Notice of Non-Payment to the subcontractor.
An earlier article addressed the interim adjudication regime under the new Construction Act. Importantly, however, under the prompt payment regime a party only gains the right to stop working 10 calendar days after an adjudicator’s decision, if the payer fails to abide by the decision.
The Construction Act’s prompt payment regime sets out clear and strict responsibilities for owners, contractors, and subcontractors. In case of any uncertainty regarding such responsibilities, obtaining timely advice from knowledgeable counsel can help avoid potential consequences from an unintentional breach of the Act.