Ontario’s new Construction Act:
What changes on July 1 and how
can you prepare for the new rules?
OGCA president Clve Thurston with Chris
Stanek, a partner at Gowling WLG at the
CDAO Construction Act seminar
Canadian Design and Construction Report staff writer
When Ontario’s new Construction Act goes into effect
July 1, there will be major changes in the way owners,
contractors and design professionals fulfill their legal
obligations and protect their interests. However, the
biggest changes are another 18 months away, when sig-
nificant prompt payment and new adjudication rules go
into effect.

The Ontario legislation is significant elsewhere in the
country because the federal government and several
other provinces are preparing new construction laws in-
corporating many of the provisions of the new Ontario
legislation. Several lawyers and consultants outlined the changes
– including challenging transitional provisions – at a May
14 seminar sponsored by the Construction and Design
Alliance of Ontario (CDAO).

Geza Banfai with McMillan LLP outlined the reasons
for the new rules, which trace their roots to lobbying sev-
eral years ago from the National Trade Contractors Coali-
tion of Canada (NTCCC), which led to a private member’s
bill that failed to move forward after government min-
istries and agencies, private owners, general contractors,
consultants and lenders raised strong objections.

However, the provincial government agreed to com-
mission lawyers Bruce Reynolds and Sharon Vogel to
conduct an extensive review of old Construction Lien Act,
dating back from the 1980s. After extensive consultation
12 – Spring 2018 — The Canadian Design and Construction Report
with stakeholders, Reynolds and Vogel submitted 101
recommendations, which became the foundation for the
new Construction Act, which was passed and proclaimed
just before Christmas last year.

By late April, government officials had drafted the nec-
essary enabling regulations.

The changes in Bill 142 include several fundamental
changes in lien periods, holdbacks, trust obligations,
claims and procedures, said Ted Betts, the head of Gowl-
ings WLG’s Infrastructure and Construction Sector
Group. “A lot of these (legislative) changes are in the ‘modern-
ization’ bucket,” he said. “It’s worthwhile for everyone to
read through all of them.”
The so-called “modernization” changes include:
• An extension of the lien “preservation period”, from 45
to 60 days and a longer lien “perfection period” from
45 to 90 days after the last day the lien could have
been preserved; both of these ensure there “is more
time to negotiate and work out disputes rather than
come to the lawyers;” and
• Mandatory holdback release by the end of the hold-
back period, unless owners publish their intentions
not to release the holdback in a public notice no later
than 40 days after the publication of the Certificate of
Substantial Performance.

“There’s a large deliberate gap,” Betts said. “An
owner has to put their cards on the table” so that con-
tractors and subtrades know where they are ahead of the
lien filing deadline. Effectively, the new rules give the
contractors and owners “an extra 20 days to settle dis-
putes and avoid standoffs.”
The new legislation also allows for owners and con-
tractors to release holdback on larger projects ($10 mil-
lion or more) before the project is completed.

“The theme throughout all of the changes, in these
subtle changes, is getting cash flowing through the pro-
ject faster from the owners through the contractors to
suppliers and subcontractors, and avoiding disputes.

There are other changes, as well:
• Multiple improvements can be treated as separate
contracts for the purposes of determining the sub-
stantial performance date and lien periods; so con-
tractors don’t have to wait for every bundled part of
the overall project to be completed before receiving
their holdbacks. However, this provision applies at the
owner/general contractor level, and Betts said “It’s not
clear how this will play out on subcontractors and sup-
pliers.”



• New trust accounting rules require a separate trust ac-
count for contractors and subcontractors (though sev-
eral projects can be funded through the same trust
account). “Trust funds must be segregated and trace-
able in a contractor’s or subcontractor’s trust ac-
count,” as much as possible. This provision will help
prevent creditors from grabbing trust funds (including
holdbacks) when a contractor or subcontractor goes
bankrupt as the trustee can now (hopefully) see clearly
the trust account status.

• There are several new forms, and new tools for con-
tractors to request information about their projects.

One issue with the new legislation, said Bird Con-
struction board member Paul Raboud, is the “tricky tran-
sition periods.”
The regulations and legislation suggest that if any
contract is in force or “if there is any activity such as a
pre-qualification happening before July 1,” the old rules
apply. Someone in the audience asked what the status
would be if you were on a general pre-qualification list
rather than one for a specific project. Panelists re-
sponded by saying they aren’t sure – this may be one
issue that would need to be resolved through a judicial
process, but Raboud had a simple answer: “Assume (the
lien period) is 45 days and not 60 days” -- in other words,
behave as if the old law applies, unless you are certain
the new rules will be valid.

WeirFoulds LLP partner Glenn Ackerley said the “sub-
stantial performance” criteria has changed – monetary
limits have been doubled. Now, substantial performance
occurs when the value of the project outstanding meets
the test of three percent of the first $1 million of the pro-
ject’s value (instead of $500,000); two per cent of the
second $1 million (again, instead of $500,000) and one
per cent of the remaining value.

Jerry Paglia, director of procurement for the Regional
Municipality of York, says there is a “lot of training
needed for owners and consultants.”
“The phasing in of requirements (including the future
prompt payment and adjudication provisions) is going to
create complexity,” he said. “With two phase in periods,
there could be three different forms of contract at the
same time.”
“Owners, staff and consultants are going to have to
know which contract applies to the project, with longer
period for lien rights and less flexibility in what we can
deduct from the payments.”
“We can’t deduct funds from other projects. The ad-
ministration for the contracts will take longer.”
“There’s going to be more scrutiny on dealing with
general contractors, terminating and not paying – we’ll
have to publish it. (There’ll be) more of a public relation-
ship, as that information trickles down to subcontrac-
tors.” Eric Hoffstein of Minden Gross LLP said there will be
new bookkeeping challenges, especially for smaller busi-
nesses, because of the much more stringent trust ac-
count requirements. “If you don’t have an outside
bookkeeper helping with the accounting, now might be a
good time to do that.”
Meanwhile, Steve Ness, president of the Surety Asso-
ciation of Canada (SAC), outlined new bonding rules, in-
cluding the significant requirement that all public
projects greater than $500,000 must have 50 per cent
performance and payment bonds. “Public” includes the
broader public sector such as school districts.

Other changes are intended to bring much greater
clarity and responsiveness to the bond claims process,
with finite deadlines for responding to claims by either
accepting, denying or seeking more information.

The speakers indicated that, while the regulations
going into effect on July 1 will impact the industry, the
really big changes will occur in October 2019, when the
new law’s remaining provisions will be implemented.

These include mandatory prompt payment require-
ments. In about a year and a half, “owners must pay
within 28 days of receipt of proper invoices,” said Chris
Stanek, a partner at Gowling WLG. There are specific re-
quirements in defining a “proper invoice”.

Owners can dispute the invoice “but must provide
written notice in the prescribed form” within 14 days of
receiving the invoice. The notice/response system is de-
signed to tie in with a new adjudication system, which al-
lows an exceptionally rapid decision on payments by a
third-party expert adjudicator (agreed to by the parties or
selected from a qualified panel) to determine if the pay-
ment would actually be due.

“If the owner has not paid but delivered a notice of
non-payment, the contractor must give notice of dispute
within seven days after receipt of the owner’s notice of
non-payment,” Stanek said.

Betts added that there is an additional concern for
contractors. “If a notice of non-payment has also not
been delivered, the contractor will have 35 days to de-
cide to either pay its subcontractor out of its own pocket,
or to commence a fight with the owner through adjudica-
tion.” Everyone in the construction supply chain will subject
the notice/prompt payment provisions and if you don’t
pay, “you will need to pay statutory interest.” If pay-
ments aren’t made after an adjudicator renders a deter-
mination, contractors and suppliers can leave the job site
and charge remobilization fees if they return.

Banfai said the prompt payment and adjudication pro-
visions, when they are implemented, are “collectively
nothing short of a cultural change in the industry.”
One audience member asked what the rules will be
for federal contracts. Betts responded that Reynolds and
Vogel are currently conducting a review for the federal
government, which is expected – along with several
other provinces – to pass similar prompt payment legisla-
tion soon. These changes will bring Ontario and Canada
to the state of practice in Britain, Europe, Australia, and
most U.S. states.

The new rules are a “significant change in the way we
will be doing things going forward,” Banfai said. “I think
it is all for the better.”
The Canadian Design and Construction Report — Spring 2018 – 13