Timely Payment for Construction Services almost a Reality
It is unfortunate to think that those working in the construction industry are often denied a paycheck for their work based on legislative and contractual loopholes, such as "pay when paid" or "pay if paid" clauses within construction contracts that have the effect of off-loading the risk of late payment to those below.
Ontario's current lien system, as established by way of the Construction Lien Act, addresses those who default on payment, without offering a practical solution for those who are simply slow to pay. This forces many workers to settle for less than what was contractually agreed upon in order to guarantee themselves some form of compensation. Other countries, such as the United States, Australia, the European Union and New Zealand, have solved this problem with prompt payments laws. Finally, Canada is one step closer to the same reality.
Bill 69, otherwise known as the Prompt Payment Act, 2013, is an Act respecting payments made under contracts and subcontracts in the construction industry. Bill 69 is a Private Members Bill that was introduced by Liberal MPP Steven Del Duca. The Bill passed first reading on May 13, 2013 and second reading on May 16, 2013, with unanimous support from all three provincial parties. The Bill has since been referred to the Standing Committee on Regulations and Private Bills where it will undergo a public consultation process. Should this Bill succeed, Ontario will be the first Canadian jurisdiction to pass legislation addressing the issue of prompt payment for construction work.
The legislation cannot be contracted out of, meaning that every new construction contract or subcontract related to an improvement would automatically be deemed amended in order to comply with the Act should it become law, whereas all existing contracts would be grandfathered.
The main concern the Act is trying to address is the cascading effect that delayed payment has on workers and material suppliers down the contracting and sub-contracting chain. With all of the upfront costs required of contractors and subcontractors for every project, financial hardship is overwhelmingly present in the construction industry. In an effort to relieve such hardship, this Act sets out minimum norms for payment schedules in the industry to ensure that contractors and subcontractors have a predictable flow of funds for satisfactorily performed work on a construction project.
More specifically, Part II of the Act entitles contractors and subcontractors to receive progress payments and to suspend work or terminate a contract or subcontract if such payments are not made. That is, where a contract or subcontract provides for progress payments that become payable at least every 31 days after the first day that services or materials are supplied, the payments will be made in accordance with the contract or subcontract. Where no progress payment provision exists, contractors will have to be paid 20 days after the monthly invoice is submitted, whereas subcontractors will have to be paid 10 days after a payment certificate is issued or 30 days after the subcontractor submits an invoice. Furthermore, this Part also sets out the ways by which payments can only be withheld, while imposing limits on such amounts. Part III of the Act sets out contractors' and subcontractors' entitlements to certain financial information from owners prior to entering into a contract. Overall, failure to comply with the Act could bring about delays for projects and also additional costs associated with demobilization and remobilization of forces should a suspension of work occur.
Many construction industry associations are in favour of this Act, some of which have even started online petitions to prove support from the local community. However, others who would be targeted by the Act, such as developers and owners, have expressed many concerns. Some have argued that this proposed legislation would create an enormous administrative burden for all parties involved and take away the freedom and flexibility of construction parties to negotiate specific terms for projects. For example, parties would be precluded from agreeing to payment terms tied to milestones, which are used on time critical projects. Moreover, many of the timelines incorporated into the Act have been called unrealistic. In the end, hopefully these concerns can be addressed through the public consultation process, or through the Regulations which have yet to be drafted, in order for the Bill to get passed so that it can achieve its stated purpose, while limiting the concerns associated with it.