Construction Act

CEO Anticipating Success with Construction Lien Reform Legislation

Barry Steinberg and David Zurawel will be appearing before the Standing Committee on the Legislative Assembly on Wednesday November 1, 2017 as the provincial government finalizes it’s Construction Lien Act Reform Legislation.

Bill 142, the Construction Lien Act Amendment Act, represents the first comprehensive change to Ontario’s Construction Lien Act in more than 30 years. The draft legislation, if passed into law, would reform lien provisions in Ontario, create a prompt payment regime for Ontario’s construction sector, and would also create a proposed adjudication-based dispute resolution system.

Consulting Engineers of Ontario, playing an active role in the government’s public consultation process, has been able to secure a number of key provisions important to our industry in the draft legislation. Namely:

i. Amending permissive language that currently applies to release of basic holdback from “may” release upon completion of work to “shall” release upon completion of work;

ii. Extension of the liens right period to both preserve and perfect a lien;

iii. Permitting the partial release of holdback through a phased or annual arrangement with a specific designation recognizing a project design phase; and

iv. The use of letters of credit as acceptable financial instruments with which to hold holdback funds.

CEO, with the expert support of its MTO/CEO Contract Administration Subcommittee, has also been able to secure a proposed exemption for consulting professionals from new surety bonding provisions required of contractors on public infrastructure projects.

The committee is scheduled to complete its clause-by-clause review of the draft Act by November 29th. It is expected that the bill will then quickly make its way back to the legislature for a final third reading vote and anticipated passage before the end of the current legislative session on December 14th.

Given the breadth and depth of the changes anticipated by Bill 142, should it be passed into law, the government has committed to a specific and comprehensive transition period so that the proposed terms and conditions could be sufficiently implemented by Ontario’s construction sector going forward.

CEO will keep members informed of what these changes would mean for members, our industry and the broader construction sector.

Attorney General releases Construction Lien Act Review report & recommendations

Ontario Attorney General Yasir Naqvi this afternoon released the expert report of the independent review of the Construction Lien Act authored by Bruce Reynolds and Sharon Vogel, entitled Striking the Balance: Expert Review of the Ontario’s Construction Lien Act.  The government is characterizing the report and its recommendations as a “fair and thoughtful assessment of the complex challenges faced by today’s construction industry.”

Attorney General Naqvi in his announcement stated that the government will introduce legislation in the spring of 2017 with the objective of:

  • Modernizing construction lien and holdback rules;
  • Introducing rules around prompt payment; and,
  • Creating a new process to speed up dispute resolution

The Attorney General has also committed to meeting with stakeholders who participated in the Construction Lien Act Review to receive feedback on the report.  CEO was one of more than 60 industry groups that actively participated in this review process and will be meeting with Minister Naqvi in the coming weeks.

The report makes 100 recommendations to government covering issues of:

  • Lienability
  • Preservation, Perfection & Expiry of Liens
  • Holdback & Substantial Performance
  • Summary Procedure
  • Construction Trusts
  • Promptness of Payment
  • Adjudication
  • Surety Bonds
  • Technical Amendments; and,
  • Industry Education & Periodic Review

CEO staff will be reviewing the report and its recommendations over the coming days and will provide an analysis of the potential impact for our industry and your businesses.  If you wish to review the report and recommendations, it is available here.


What is Construction Lien Act?

Ontario’s Construction Lien Act (CLA) was enacted in 1983. It sets out a system of rights and trust provisions to provide financial protection to construction suppliers and landowners.

The CLA mandates the owner or payers of a project to retain a holdback of 10 per cent of the value of services and materials supplied to ensure satisfactory and timely completion of work. Section 22(1) of the CLA states:

"Each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 percent of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired as provided in Part V, or have been satisfied, discharged or provided for under section 44 (payment into court)."

Under the current CLA, Ontario contractors are allowed to file a lien (security against the property) claim 45 days from  

  •  the publication of a certificate of substantial performance of the contract,
  •  the date the contract is completed, or
  •  the last day of materials supplied to the project site

The CLA clearly states the expiry of lien rights of contractors, but does not explicitly address when the holdbacks are to be released. This is left to the owner and other payers to settle by contract. Instead, sections 25 and 26 only set out conditions under which a payer "may, without jeopardy" make payments reducing or discharging the amount of holdback required under the CLA.


Expert Review of Construction Lien Act

In February 2015, the Government of Ontario launched its expert review of the CLA to seek ways to:

  • reduce the financial risks companies face when they are not paid on time for services
  • make sure payment risk is distributed fairly among all industry participants
  • find ways to ensure that companies pay for services and supplies on time

Ontario has selected Bruce Reynolds, Partner and International Construction Projects Group Chair at Borden Ladner Gervais (BLG), as Counsel to lead this review. Supporting Reynolds is Co-Counsel Sharon Vogel, Partner and Regional Leader of the International Construction Projects Group at BLG Toronto, plus a team from BLG’s Construction Law Group. 

CEO has been selected as an important industry stakeholder by Reynolds to participate in the province’s expert review of the Act. CEO will provide expert advice and insight to reform the CLA, prompt payment issues impacting Ontario’s design and construction industries and assess the effectiveness of dispute resolution under the CLA.

Resources

Should you have any questions about the CLA, do not hesitate to contact David Zurawel at 416-620-1400 Ext. 222 or dzurawel@ceo.on.ca