Stymied by the effects of late payment, the province of Ontario has tabled Bill 142, amending the Construction Lien Act. Renaming the Act the Construction Act, the changes in legislation have been introduced as a means to create a safer environment for subcontractors entering into large public sector jobs with large contractors
As John Yakabuski, PC MPP for Renfrew-Nipissing-Pembroke said: “If you’re a small contractor [working for] a large contractor, your small contractor has to pay his workers… his suppliers. He or she has to pay their bills on time.”
The consequences of late payment
Yakabuski says: “[If] they’re (subcontractors) not getting paid by the big entity, they’re actually challenged as to whether or not they’re going to survive.”
The insolvency of subcontractors can hinge on the performance of a project and whether the large contractors pay them on time; this late payment ‘side effect’ has deeper consequences for the industry and destabilizes the construction supply chain, creating uncertainty to the future of businesses who provide quality work, and removes the incentive for competitive subcontractors.
Attorney General Yasir Naqvi says “between 2002 and 2013, the average collection period in construction increased from about 57 days to 71 days.” The cause of the problem? Naqvi suggests: “increased complexity of construction projects means that resolving disputes takes more time than ever – months or even years – to work out.”
If passed, Bill 142 will make surety bonds mandatory across all public-sector construction projects in Ontario. The labor and materials payment bond would have to be written by an “insurer licenced under the Insurance Act” to write surety and fidelity insurance.
With a coverage limit set at 50% of the contract price, protection is extended to subcontractors and suppliers who are protected in case of project insolvency. “Bookkeeping requirements would be better set out to protect the subcontractor if a contractor becomes insolvent and can’t pay its debts,” says Navqi.
The Progressive Conservative Party of Ontario share the sentiments of the bill. Julia Munro said that her party “has been a long-time advocate to bring prompt-payment legislation to Ontario.”
“Small businesses in the construction industry face undue risk. Higher up the construction chain, with the advantage of purchasing power, the payments earned by ground-level contractors were at risk.
“[The bill] is a step in the right direction.”
Striking the balance: Expert review of Ontario’s Construction Lien Act Report
The Striking the balance: Expert review of Ontario’s Construction Lien Act report, commissioned to the Borden Ladner Gervais law firm was released in April 2016.
The report recommended that the province adopt a similar approach set out by the 1935 US Miller Act of making surety bonds mandatory for public sector work over a certain value, recommending to “enter into a dialogue with the Surety Association of Canada to agree on standard form surety bonds to be incorporated into the Act by regulation.”
The purpose of this is to avoid lengthy court disputes between large contractors and their subcontractors by lengthening court actions from 90 days to 150 days, giving both parties more time to solve discrepancies. If a payment claim is $25,000 or below, the matter can be settled by a small claims court, which can prove to be a much quicker process.
- Late payment is recognized by the Ontario government as a regressive symptom of the construction industry which has detrimental effects to the whole supply chain
- Bill 142 will ensure that surety bonds are mandatory across all construction public-sector jobs in Ontario
- Subcontractors and suppliers are covered in the event of project insolvency
- Opposition party agrees with sentiments of the bill
- Striking the Balance report inspired by the 1935 US Miller Act
- Construction lien claims under $25,000 to be setting by Small Claims court
- Timelines to file liens and start court actions extended from 90 days to 150 days to help parties resolve dispute
- An adjudication system is set up dealing with payment of disputes, resolving most issues within six weeks