Canadian Consulting Engineer

Prompt Payment Act would cause upheaval in construction industry

School boards, municipalities and other building owners in Ontario are expressing grave concerns with proposed legislation known as the Prompt Payment Act.

March 4, 2014   Canadian Consulting Engineer

School boards, municipalities and other building owners in Ontario are expressing grave concerns with proposed legislation known as the Prompt Payment Act.

Introduced last year under Bill 69-2013, the proposed new legislation is intended to ensure that construction contractors and subcontractors don’t have to wait too long for payment. It would have a widespread and deep impact on the way construction contracts are administered. For example, as drafted, the legislation will restrict owners from retaining holdbacks other than those allowed under the Construction Lien Act. It will give the contractor the right to suspend work if a progress payment is not made, and it only provides a short review period of 20 days for the consultant and the owner to review an application for a progress payment. It also would require owners to provide their financial information to the contractors, which could present privacy concerns.

Construction associations in other provinces are starting to consider introducing similar prompt payment legislation.

Ontario’s contractor and trade organizations support the proposed prompt payment legislation, arguing that late payments damage the industry in a cascading effect that reaches down to workers’ and their families. See “Contractors and trades want laws to ensure prompt payment,” CCE, October 16, 2013, click here.

Contractors and trades want laws to ensure prompt payment

Owners also support prompt payment for work that’s properly completed, but they have problems with the details in the bill. Tensions are rising as the bill has already passed Second Reading and is now slated for Standing Committee Hearings at the Ontario Legislature on March 19 and 20.

Glenn Clarke, P.Eng., who oversees construction of facilities for the Simcoe Muskoka Catholic District School Board and is also active with the Ontario Association of School Business Officials (OASBO), has concerns about the proposed rules.

He says the biggest problem is the lack of consultation with building owners, who are deeply impacted. “There has been really no consultation with the owners’ groups at all as it relates to the development of the background issues on Bill 69 or on the actual development of the bill,” says Clarke. In contrast, “The contractors’ construction associations have been working on the background for this for the past two years.”

Clarke believes that if the proposed new law is passed as drafted, it will create potential serious problems for construction projects, such as delays, overpayments, and the inability to get deficiencies corrected.

He and others would like the Bill to be halted pending more discussion: “so that the general contractors and sub-contractors [can] meet with the construction contract owners in a public dialogue to talk about their issues with … prompt payment.”

While other countries do have Prompt Payment Acts — including most U.S. states, and in the U.K. and Ireland — Clarke says what is important is the details within those Acts. “For instance, in Ireland, their Act has a 45-day payment period, whereas in Ontario they’re looking at having a 20-day payment period.”

The legislation as drafted will supersede any contractual payment arrangements between the owner and contractor on a project, thereby potentially overturning the industry’s current modus operandi.

Cities such as Toronto and Mississauga are concerned about the Bill, which was introduced in May 2013 by Steven Del Duca, MPP for Vaughan as a private members’ bill.

For a detailed discussion about the potential impact of the proposed legislation on owners of construction projects, see Clarke’s article in The Advocate’s Fall/Winter issue, “Prompt Payment Act, 2013, Addressing the Elephant in the Room.” Click here.


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