• 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