Ontario’s prompt payment system under the Construction Act (the “Act”) has changed the way that parties to construction projects understand their payment obligations. But there are several significant gaps in the prompt payment scheme that produce significant uncertainty and risk for contractors. In this article, we discuss three such gaps.
First, when it comes to public-private partnership (“P3”) projects (also known as alternative financing and procurement or AFP projects), the language of the Act produces significant legal uncertainty that many parties involved in P3 projects are likely not even aware of – and that urgently demands a change to the Act’s regulations. Absent such a change, prompt payment will not apply, or will apply unevenly, to the construction phase of P3 projects.
Second, contractors may be stranded with liability to pay subcontractors following certification of completion of a subcontract, without the ability to recover from the owner. The problem is that the Act’s scheme for payment of holdback requires payment of holdback by a party who is directly liable for payment on a subcontract any time all liens under any subcontract expire; but it requires holdback release from the owner only when all liens under the contract have expired. This means that a contractor can be liable for mandatory payment of holdback to a subcontractor following certification of completion of a subcontract, without the ability under the Act to require or obtain release of holdback from the owner.
Third, holdback release from an owner to a contractor is mandatory following the expiry of a contractor’s lien rights. But the Act creates a potential issue if a contractor wants to enforce that mandatory release through adjudication, because the Act’s language means that, by default, adjudication will not be available if holdback payment is refused following completion of a contract or subcontract.
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