Canadian Consulting Engineer

Contractors and trades want laws to ensure prompt payment

October 16, 2013
By Canadian Consulting Engineer

Contractors, trade organizations and unionized labour are standing together to support a proposed "Prompt Payment Act" for the construction industry in Ontario.

Contractors, trade organizations and unionized labour are standing together to support a proposed “Prompt Payment Act” for the construction industry in Ontario.

If passed, it would be the first legislation to enact prompt payment in Canada. However, the majority of U.S. states, the European Union, U.K., Ireland, Australia and New Zealand have such laws in place.

The legislation proposed by Bill 69 in Ontario would establish minimum normal times for owners to make payments to contractors. It would work in tandem with the Lien Act. The Bill has been put forward by Steven Del Duca, MPP for Vaughan (near Toronto) and awaits review by the Ontario Legislature’s standing committee on regulations and private bills.

Scores of construction organizations are endorsing such legislation, including the Ontario General Contractors Association and the National Trade Contractors Coalition of Canada (Ontario), the Canadian Institute of Steel Construction and the Canadian Precast/Prestressed Concrete Institute.

Just this week the Ontario Construction Secretariat (OCS), which represents 25 unionized construction trades and their contractors in the industrial, commercial and institutional sectors, issued a statement in support of Bill 69. Sean W. Strickland, OCS chief executive officer, said: “Contractors who have upheld their end of the bargain in a construction project should be able to expect timely payment, so they can put people to work on the next project…. Late payments in construction aren’t only harmful to our industry and the economy, but they have a very real negative impact on workers and their families, by lowering employment and investment in training.”

OCS has based its position on a detailed report outlining what the legislation would be that was published in April by Prism Economics and Analysis: “The Need for Prompt Payment Legislation in the Construction Industry.”

The executive summary to that report notes that while late payment is a problem in every industry, “the unique structure of the construction industry amplifies the consequences of late payment.” The report describes the system of contracting and sub-contracting as a pyramid structure, and says, “An interruption in the payment flow anywhere in the construction pyramid has a cascading effect down the rest of the contracting and sub-contracting chain.”

It notes: “The heart of the problem is not outright default on payment, but late payment,” and adds: “Contingent payment clauses invite abuse.”

The system is unfair according to the report because the party that delays payment effectively “conserves its working capital,” and bears no costs. Rather, “the costs are borne entirely by the party whose payment is delayed unless that party can further offload the payment risk to another party. Like all games of musical chairs, however, there is always one player that loses — the party that has no capacity to off-load payment risk onto someone else.”

The construction industry as a whole pays the price because contractors have to factor into their bids the cost of financing late payments, and that in turn tilts the playing field and means fewer contractors have the financial resources to compete. The report lists other collateral damage as lower employment levels by contractors, less training for employees, and less investment in machinery and equipment.

To read the Prism Economics and Analysis report, click here.

To read the Ontario Construction Secretariat press release of October 15, click here.


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