Construction Act

FULL Implementation of the construction Act

ACEC-Ontario continued its work with government, member firms and industry partners as the implementation of regulations governing prompt payment and adjudication systems were enacted on October 1, 2019. Staff provided more than a half dozen implementation briefings to member firms and chapters leading up to and after the enactment of the regulations. These sessions provided insight and advice on how to prepare, manage and abide by the new rules of the Act. ACEC-Ontario, working with MEA, also secured the services of McMillan LLP to update the MEA/ACEC-Ontario Standard Client/Engineer Agreement for Professional Consulting Services to include the necessary contract terms and conditions for Prompt Payment and Adjudication regimes, bringing the document in compliance with the Construction Act.

Historical Overview

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.

ACEC-Ontario (formerly Consulting Engineers of Ontario), played 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.

ACEC-Ontario (formerly Consulting Engineers of Ontario), with the expert support of its MTO/ACEC-Ontario 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.

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 introduced 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. ACEC-Ontario 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

Our 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. 

We have been selected as an important industry stakeholder by Reynolds to participate in the province’s expert review of the Act. ACEC-Ontario 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 [email protected]