The mining industry will always need infrastructure to access, extract, transport and process minerals, so when the government of Ontario changes the rules governing payment for construction in Ontario, mining executives must take note. The changes will create consequences for owners who fail to implement the policies and procedures required to comply.
Effective July 1, 2018, the government substantially amended the Construction Lien Act and renamed it the Construction Act, but that was just the first step. The second step occurs Oct. 1, 2019, when the prompt payment and adjudication regimes included in the Construction Act come in to force. However, it is not as easy as simply throwing out one book and buying a new one. Construction in Ontario will now be governed by three different regulatory regimes.
1 We will be continuing to implement and administer contracts for which procurement was begun or the contract was signed prior to July 1, 2018, for a few years yet. Such contracts, and all their respective subcontracts, will remain governed by the Construction Lien Act, as it existed on June 30, 2018.
2 Contracts signed after that date, or for which procurement was begun only after that date, will be governed by the new Construction Act, but without the prompt payment adjudication sections.
3 Contacts for which procurement is begun only on or after Oct. 1, 2019, will be governed by the full ambit of the new Construction Act.
Two different regimes apply to contracts now, and after Oct. 1, 2019, three different regimes will apply. The first question mining companies who procure construction work will need to ask will be which regime governs the contract.
Impact of the changes
The “modernization” changes effective July 1, 2018, are extensive and touch almost all parts of the Act. The time period for preserving a lien is extended from 45 days to 60 days. For the mining industry some clarity is bought to the definition of an improvement to which the Act will apply. Under the Construction Lien Act, an “improvement” included a repair, which led to the application of hold backs to some normal course work. Under the Construction Act an “improvement” includes only a “capital repair” which is defined as one that is intended to extend the normal economic life or improve the value of land, but not to include maintenance work performed to maintain or prevent deterioration.
The second step, the coming into force of prompt payment and adjudication, may have greater impact on how construction is administered. Prompt payment means that an owner must pay its contractor within 28 days of receipt of a proper invoice, or give notice to the contractor that it intends not to pay within 14 days of the date of the proper invoice. The contractor in turn must give notice to its subcontractors if the owner is planning not to pay or, if the contractor is paid, must pay its subcontractor within seven days of receipt of payment from the owner or give notice that it intends not to pay. This timing continues down to subcontractors at all levels, an additional seven days for payment with each level.
If notice of non-payment is given, adjudication will follow. The adjudicator will be mandated to give a binding decision to the parties within 30 days after receipt of documents. The results of the adjudication are binding on the parties and if an owner fails to pay within 10 days of an adjudicator’s order, the contractor can stop work.
What mining companies can expect
The government’s expectation is that the deadlines for payment and mandatory adjudication will substantially reduce the time for payment in the construction industry and that once payment is made, construction litigation will be reduced. In the short term, every construction practitioner will be paying close attention to the timing of the contracting process to keep track of which of the three distinct regimes will apply and, under the ultimate prompt payment regime, establish processes to receive, review and make decisions on proper invoices within the 14 days allowed under the Act.
Before questioning any invoice, the owner will need to have its position thoroughly investigated and any expert reports and analysis that might be needed to defend its decision to an adjudicator prepared. The owner may face an adjudicator within a few days after its decision to dispute a proper invoice.
PAUL BLUNDY is a partner and leader of public infrastructure projects practice at Bennett Jones, LLP, Toronto.