The pending amendments to the Construction Act (the “Act”) include a new requirement for the annual release of holdback, without the right to set off against holdback. However, while implementing a number of significant changes to the Act, the Legislature elected not to close an identified gap in the Act related to Public Private Partnership (“P3”) projects. As a result of this failure to close the identified gap, a significant issue is created in the context of mandatory annual holdback released on P3 projects in Ontario.
One issue is that the “owner”, for the purposes of the annual release of holdback, will be the provincial Crown (or one of its agents or crown corporations). On a P3 project, the provincial Crown will have little or no holdback to release each year. This might have the effect of denying subcontractors meaningful annual holdback release on P3 projects – but a related concern is that there is a significant lack of clarity as to whether the amendments require full annual release of accrued holdback by a contractor even if only some holdback is released by an owner. In our view, this issue requires clarification in the statute prior to the amendments coming into force.
Other potential issues with the amendments bear scrutiny even outside of the context of P3 projects:
- the amendments providing for annual lien expiry are likely to prompt a significant increase in the number of liens, as contractors and subcontractors will need to lien annually in respect of delay claims; and
- the amendments significantly increase the importance of proper invoices and adjudications, as these will be used to determine the amount of holdback releasable, which in turn increases the likelihood of adjudicative disputes in the course of projects.