The Construction Act of Ontario offers a comprehensive legal framework to ensure that contractors and subcontractors are paid for their work. This framework outlines various remedies and procedures designed to enforce payment, addressing common issues such as delayed payments, non-payment, and disputes over the quality or scope of work. Here’s a summary of the key remedies and procedures available under the Construction Act to help enforce payment to contractors and subcontractors:

1. Construction Liens

A construction lien is a claim made against a property by a contractor or subcontractor who has supplied labor or materials but has not been paid. The lien provides a form of security, ensuring that the claimant has a legal interest in the property equivalent to the value of the unpaid work or materials.

• Preservation and Perfection:  To enforce a lien, it must first be preserved by registering it against the title of the property within 60 days after the completion of the work. The lien must then be perfected within 90 days of the last day on which the lien could have been preserved, by commencing a legal action and registering a certificate of action.

2. Holdback Requirements

The Act requires a mandatory holdback of 10% of the contract price by the owner, to be released to the contractor after the lien period expires. This ensures a reserve of funds that can be used to satisfy any lien claims, thereby protecting subcontractors and suppliers.

• Release of Holdback: The holdback amount is to be released 60 days after the completion of the contract unless a lien is registered against the property, in which case the holdback must be retained until the lien is discharged or expires.

3. Prompt Payment Rules

The amendments to the Construction Act introduced prompt payment rules, which mandate specific timelines for payment once an invoice is submitted. These rules aim to ensure timely payment down the construction chain, from owners to contractors, and from contractors to subcontractors.

• Payment Timeline: Once a “proper invoice” is received, the owner has 28 days to pay the contractor, and subsequently, the contractor has 7 days to pay their subcontractors after receiving payment from the owner.

4. Adjudication Process

The Act introduces an adjudication process as a fast-track dispute resolution mechanism. This process allows parties to resolve disputes regarding payment, the scope of work, and other matters without resorting to lengthy and costly litigation.

• Procedure: A party can initiate adjudication by giving notice to the other party. An adjudicator is then selected, and a decision must be made within 30 days of receiving the documents related to the dispute. The adjudicator’s decision is binding on an interim basis, pending the outcome of any litigation or arbitration, and must be complied with immediately.

5. Trust Provisions

The Construction Act specifies that funds received by a contractor or subcontractor for work on a project are held in trust for those further down the chain. This ensures that payments are used to satisfy obligations to workers, subcontractors, and suppliers, rather than being diverted for other purposes.

• Enforcement: If a party fails to comply with the trust provisions, they may face not only civil remedies but also criminal charges, providing a strong incentive for compliance.

Conclusion

The Construction Act of Ontario provides a robust legal framework designed to protect the rights of contractors and subcontractors, ensuring they are paid for their work. By utilizing construction liens, adhering to holdback requirements, following prompt payment rules, engaging in the adjudication process, and respecting trust provisions, parties can enforce payment rights effectively. It’s essential for those involved in the construction industry to understand these mechanisms and how to apply them in order to safeguard their financial interests.

Please note these materials have been prepared for general information purposes only and do not constitute legal advice. Readers are advised to seek legal advice by contacting Frank Feldman* regarding any specific legal issues.