Two unresolved Construction Act issues: Lien rights/adjudication conflicts and holdback payment timing

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Ted Dryer, chair of the Construction Lien Task Force of the Council of Ontario Construction Associations (COCA) has written a report about Bill 142 — the recently-introduced replacement for the Construction Lien Act — where he points out at least two issues that will need to be resolved before the bill becomes law.

“Bill 142 is a substantial and complicated piece of legislation,” he writes. “It will take time to fully digest its effect and implications. Here are two issues that I noticed on my preliminary review of the Bill.”

First, there is potential conflict between lien rights and adjudication. If, for example a sub-contractor loses an adjudication, should they have the right to file a claim for lien for the full amount of their claim despite the ruling?

On the one hand, if a subcontractor is able to file a claim for lien for the full amount, that will interrupt the flow of funds on the project and tend to defeat the objective of prompt payment and adjudication as interim dispute resolution. On the other hand, if the effect of an adverse ruling of an adjudication against a subcontractor is that the subcontractor’s lien may be vacated for a lesser sum as determined by the adjudicator, then the subcontractor’s lien rights will be effectively decided at the adjudication stage for all practical purposes. Bill 142 seems to adopt the second approach. That is not fair for the subcontractor considering that adjudication is only intended as an interim ruling.

Second, it is unclear how mandatory payment of the holdback is intended to work as between contractors and subcontractors. 

Advocates for prompt payment often cited the example of the excavator who has to wait until the end of the project in order to receive their holdback. On the one hand, Bill 142 appeared to make a subcontractor’s basic holdback payable upon the expiration of their lien rights, meaning 60 days after their date of last supply. On the other hand, the new section 27.1 allows a “payer” to withhold payment of the holdback by delivering a notice of non-payment within 40 days of the publication of certificate of substantial performance. That suggests that subcontractors are not expected to be paid their holdback until the entire project is found to be substantially complete. If so, that tends to defeat the objective of prompt payment.

Dryer says “Hopefully these two issues can be addressed during the committee process.”

Bill 142 has only passed the first step of the legislative process, he writes. “The next step is for Bill 142 to be referred to a legislative committee who will receive submissions from industry stakeholders. The committee hearings will likely occur in the Fall of 2017. It is possible for Bill 142 to be amended during the legislative committee process. Attorney General Yasir Naqvi has said that his objective is to have the legislation pass final reading before the end of the 2017.

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