Further Amendments to the Construction Act and Regulations

24 April 2019

Otto von Bismarck is supposed to have said that laws are like sausages-it will be better for your peace of mind if you don't watch them being made. We are now squarely in the "meat inspection" stage of the new Construction Act, RSO 1990, c C.30 (the "Act"), with all that that entails.



On December 6, 2018, the Act received a series of minor amendments designed to correct and clarify certain transitional matters, as well as procedural rules in the new interim adjudication process.

The full text of the amendments can be found in Schedule 8 to the Restoring Trust, Transparency and Accountability Act, 2018, S.O. 2018, C.17, an omnibus act that was prepared as part of the 2018 Ontario Economic Outlook and Fiscal Review. This article is not intended to discuss all of the changes in a comprehensive manner (many of which relate to correcting the French text of the Act-cette saucisse épicée), but rather to summarize the central changes.   

In addition to the amendments to the Act itself, a series of amendments to the four regulations previously passed pursuant to the Act (that is, O. Regs. 302/18, 303/18, 304/18 and 306/18-for reasons passing understanding, O.Reg 305/18 is an unrelated amending regulation under the Professional Engineers Act) have now been prepared, as well. These were submitted for public comment in February, 2019, with the goal of reflecting and supporting the amendments to the Act. The comment period ended in mid-March, and it is likely that the final version of the amended regulations will be announced soon.

Amendments to the Act

The amendments to the Act are primarily common-sensical. For example, it has now been made explicit that if an improvement will remain subject to the old Construction Lien Act under the transition rules, it will now also remain subject to the old regulations, including the old forms.

Leaseholds

More effectually, there is a correction intended to address the several competing interpretations that arose regarding how a leasehold interest was to affect the transition provisions, including some that took the Act to mean that if there were a relevant leasehold interest, say a 99-year one, the old Construction Lien Act might limp along for the next century. Thankfully, that is not the case. Now, the existence of a leasehold interest is not relevant to the transition rules, subject to a fairly narrow exception: where the leasehold interest was first entered into before July 1, 2018 and a contract for the improvement was entered into, or a procurement process for the improvement was commenced, on or after July 1, 2018, and before December 6, 2018, the old Construction Lien Act will continue to apply. Otherwise, the new Act will apply.

Procurement Processes and Right to Information

Direction has also now been given as to when a procurement process will have been commenced for transition purposes. Rather than working by analogy from the list of examples formerly set out in s.87.3(2), we now have s.1(4) of the Act, which mandates:

Commencement of a procurement process 

(4) For the purposes of this Act, a procurement process is commenced on the earliest of the making of, 

(a) a request for qualifications;

(b) a request for quotation; 

(c) a request for proposals; or 

(d) a call for tenders.

Two new subsections have also been added to s.87.3. The first, 87.3(3), imposes conditions regarding improvements to premises in which a municipality has an interest. Of more general application is s.87.3(4). In sum, it clarifies that the prompt payment and adjudication provisions will not apply to a contract or subcontract entered into on or after October 1, 2019, if a procurement process was commenced before that day by the owner.

This obviously relates to the new definition setting out when a procurement process commenced. It also begs the question of how a subcontractor might find that information out. An addition to s.39 (right to information) now helpfully provides that the persons set out in that section, including subcontractors, are entitled to be told the date(s) that the contract and/or subcontract were entered into and the date on which any procurement process was commenced.

Authorized Nominating Authority and Adjudicators

Other changes are largely procedural/technical.

Section 13.3 of the Act is amended to "broaden the powers of the Authorized Nominating Authority" ("ANA"). While formerly rather narrow, s.13.3(2)(a) has been expanded and now permits the ANA to set and specify fees, costs or other charges related to the administration of adjudication, or (per s.13.3(3)) to set a method for determining these amounts. 

The Ministry of the Attorney General ("MAG") has posted on its website an email address (ANAapplication@ca.ey.com) regarding a Call for Applications for a private body to act as the ANA. The MAG website has stated for some time that the Call for Applications would be posted online on March 15, 2019. That appears not to have happened yet on the Ontario Tenders Portal; however, the MAG website continues to state that responses to the Call for Applications are due by April 5, 2019. This has raised suspicions that MAG may end up serving as the interim ANA come October 1 and the dawn of the brave new interim adjudication world. We shall see.   

Section 13.6 is amended to clarify that parties can include adjudication procedures in their contracts, so long as they do not conflict with those set out in the Act and the Regulations. 

Section 13.11 has been corrected to ensure that the party referring a matter to adjudication must now deliver the documents on which they intend to rely to both the Adjudicator and the responding party, and s.13.11.1 adds a statutory right of reply, the lack of which was previously a concern.

Non-Payment of Holdback

A final important change to the Act relates to the holdback timeline, or rather non-payment thereof. The intent of Section 27.1 (Non-Payment of Holdback) is to "provide that if an owner, contractor or subcontractor refuses to make payment under section 26 of 27 of the Act, the person to whom the payment is owed may refuse to pay out a further person from the payment owed, if the person to whom the payment is owed takes the specified steps", which in this regard would mean referring the issue to adjudication and providing the required notice of non-payment. In keeping with that intention, the timeline for the publication of a notice of non-payment of holdback has now been clarified to also run from the date on which the contract is completed, abandoned or terminated.

Amendments to the Regulations

Adjudications under Part II.1 of the Act

Regarding adjudications, O.Reg 306/18 would be amended to:

a. set out an exception to the otherwise applicable rule that the ANA must establish a fee schedule-the exception would apply in respect of fees, costs or charges for training and qualification as an adjudicator;

b. Clarify how and when the party who gave the notice of adjudication must provide the documents on which it intends to rely;

c. Set out the requirements for the response to a notice of adjudication, including a default deadline that may be extended at the discretion of the adjudicator; and

d. Clarify how these procedural requirements should be interpreted in the context of a consolidated adjudication.

The consultation draft of O.Reg 306/18 poses questions regarding two procedural issues for which specific feedback is requested, namely how provision of adjudication documents is to occur and the default deadline for a response. Presumably, the responses will affect the outcome with respect to those two issues.

Regarding s.7 of O. Reg. 306/18, which provides that the ANA must establish a code of conduct for adjudicators that addresses, at a minimum, "the prescribed matters" and also currently provides that the code of conduct is subject to the approval of the Minister, the requirement for ministerial approval is being removed.

Procedures for Actions under Part VIII

O. Reg. 302/18, which deals with actions, would be amended to provide that a plaintiff may join a lien claim and a claim for breach of a contract or subcontract.

Forms

With respect to forms, O. Reg. 303/18 would be amended to revise a number of forms to correct errors, provide greater clarity and ensure consistency with the Act.

The "General" Regulation

Finally, O. Reg. 304/18 would be amended in keeping with the changes to Section 27.1 of the Act to set out the process for contractors and subcontractors to provide notice of non-payment of holdback. If the owner gives the contractor a notice of non-payment of holdback, the contractor may provide notice to the subcontractor within three days of receiving that notice, indicating that the contractor will not pay the holdback. The subcontractor could then provide notice to another subcontractor within three days of receiving the notice from the contractor, indicating that the subcontractor will not pay the holdback.

Future Updates

It is by no means clear, even after the proposed changes to the regulations are approved, that the sausage-making will be done. Further amendments and adjustments to the Act and regulations should be expected, especially after the interim adjudication and prompt payment processes 'go live' this autumn. Areas of ambiguity and difficulties of interpretation will certainly be sussed out.

Gowling WLG will keep you apprised of any developments. This article and our "hub" will be updated when the new Regulations are proclaimed.


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