Understanding the impact of Ontario's Construction Act changes

TED BETTS: Welcome, everybody to Gowling WLG's presentation, New Year, New Rules, Understanding the Impact of Ontario's Construction Act Changes. We've got a really great program for you today. My name is Ted Betts. I'm a partner in Gowlings' Toronto office and the head of our infrastructure and construction group.

On January 1, 2026, the Construction Act in Ontario was amended in some small and some very significant ways. Today, we will be looking at those changes and discuss some of the practical implications to construction projects and how they're conducted in Ontario. Before we get going, I'd like to take a moment to make a land acknowledgment, as I am sitting in the city of Toronto.

I will acknowledge that we are on the traditional territory of many nations, including the Mississaugas of the Credit, the Anishnabeg, the Chippewa, the Haudenosaunee, and the Wendat peoples, and is now home to many diverse First Nations, Inuit, and Métis peoples. We also acknowledge that Toronto is covered by Treaty 13, signed by the Mississaugas of the Credit, and the Williams Treaty, signed by multiple Mississaugas and Chippewa bands.

We have a lot to cover today, so we're going to get right into it. We've got a number of changes to the act, primarily, holdback, lien, prompt payment, adjudication, and a bunch of housekeeping matters that have been amended.

I'm joined today by my partner in our Toronto office, Aaron Hunter, who will discuss holdback and lien provisions, as well as invoicing and prompt payment issues. Bevin Shores, a partner in our Hamilton office who will discuss adjudication, and Asif Lasani, who will discuss some of the technical and housekeeping changes that were brought in.

Before we get going, I just want to mention that we will have a time at the end for questions and answers. There's a Q&A button at the bottom of your screen. We'll collect those to the extent that they are specific. We'll address them in the comments to the extent that we think everybody will benefit from the answer. We'll raise that for everybody at the end of the presentation.

The questions are anonymous, and only the speakers will be seeing them so that we will raise them at a later date. If we don't get to them, we will address them individually following the presentation. At the end of the slides, you will see our contact information. You're more than welcome to reach out to any of us if you have follow-up questions or if there was something we didn't address that's still puzzling you about the amendments.

The whole presentation is being recorded as well, and following our presentation, an email will go out to all attendees with a link to the presentation and the slides. At the end of the presentation, there will be a survey, and we really would love it if you could take the one or two minutes needed to fill that out.

We try to provide these webinars to help the industry, help the sector keep informed about legal developments and trends that affect us all. We're trying always to make them as practical and as useful to you as they can be. And so the more feedback we get, the better our presentations and webinars are.

So kicking it off, let's start with just what got us to this. A little quick overview and then talk about transition before we get into some of the specific amendments. As many people know, over a year ago, on October 30, 2024, Bill 216 was introduced that included amendments to the Construction Act. What some people missed was at the end of November, those amendments were themselves amended in a number of ways in Bill 60-- our presentation will address all of these.

Three main themes, according to the Ministry of the Attorney General, were being addressed in these amendments. First, they were trying to enhance the existing statutory adjudication that was brought in in 2019. This is a fast-track dispute resolution. We've now had many years of adjudications, and these are some fine-tuning to ensure that they get to the quick resolution of disputes so that projects are more likely to succeed and not delayed by overwhelming disputes.

There's a lot of lived experience now with prompt payment and holdbacks in the regime that was brought in in both 2018 and 2019. And so a number of the amendments are dealing with that lived and learned experience and simplifying the payment process.

Again, the whole point of those amendments in 2018 and 2019 was to ensure faster payments going through the whole construction pyramid, and this is adding to those efforts. And then finally, there's a number of updates-- technical and housekeeping updates-- to provide greater clarity, catch up with some case law, and provide more certainty in the statute.

The transition rules start now. These amendments were effective on the 1st of January, and unlike the amendments in 2018 and 2019, they are immediately effective. So all construction contracts and construction projects are now brought into the amendments, and the amendments apply to existing contracts and are, through statutory interpretation, automatically amended by the statutory amendments that have been brought into the Construction Act.

So that has some specific implications to existing projects. And there are some transition provisions. These are projects that are not grandfathered. But there are some recognition that, for example, how does holdback apply in the new world?

We'll talk about how there is now a mandatory annual release of holdback. How does that apply to holdback regimes and projects that have already been underway? Those are dealt with in the transition section, 87.4. And they're fairly straightforward, but there's always some questions. So we're happy to answer questions if these are not clear.

If we want to move to the next slide-- effectively, they apply now in your holdback. But if you've been accruing and you're in the midst of a project, the first annual release has got some special rules, and you'll release your accrued holdback up to the date of your annual date. So you've got some specific rules on holdback in 87.4, sub 4, in how the new section 26 will apply. Otherwise, most of the transition provisions are going to be fairly straightforward.

And so with that, let's get right into those amendments. And I'll pass the microphone over now to my partner, Aaron. Aaron over to you.

AARON HUNTER: Thanks very much, Ted. I hope everybody can hear me all right. As Ted mentioned, I'm a partner in the construction group here in the Toronto office. The first two topics I'm going to cover are changes to how holdback works and how liens work. And these are important changes, but they don't actually take a lot of time to describe. And I'm going to focus on where things ended up.

As Ted mentioned, the amendments themselves went through a kind of evolution, and I'm not going to cover the whole history of the evolution-- I'll just focus on what is actually in force right now to keep it as simple as possible.

So before the amendments came into effect, annual release of holdback was something that was optional and that the parties to a contract could provide for. But now, after the amendments have come into effect, it is a mandatory process. And I'll describe briefly what the process is.

After each contract anniversary, the owner, within 40-- sorry, 14 days of a contract anniversary-- needs to publish a notice of annual holdback release describing the annual holdback amount that it is intending to pay. And after that notice has been published, the owner has to release or pay that annual holdback to the prime contractor no earlier than 60 days from the date of that notice, and no later than 74 days unless-- and this is a familiar dynamic-- unless during that time period somebody has seen the notice and put a lien on the project and that lien has not been resolved. So that's the basic idea of annual payment of holdback at the owner level.

Once the contractor, the prime contractor, has received that annual holdback, it has 14 days to pay annual holdback as appropriate to its subcontractors of the next tier down, again, unless there's a lien, and then it goes down the chain in the same way. Each level has 14 days to pay holdback down to the next level. And if there's something holding up the release of the holdback, then within 14 days of that situation being resolved, whether it's a lien or another matter, the amount has to be released.

Whatever doesn't get released using that annual mechanism gets released in the old way or the more familiar way, meaning, at the end of the project milestone, after substantial performance, 60 days after the date of publication of the certificate of substantial performance, and those rules about release of that whatever holdback is left over have not changed.

So in terms of expiry of liens, things have not changed really. Before the amendments came into effect, the liens of contractors and subcontractors were based on milestones in the project, or the contract rather. And that is still the case.

The last point I want to cover on this slide is about set-off against holdback. It's something that people have taken an interest in. Before the amendments came into effect, owners had-- I wouldn't say expansive set-off rights against the holdback-- but the act did provide that, after all liens had been resolved or had expired, if a contractor had defaulted under the contract, then the owner could set off against holdback and keep some of that money to deal with the default.

But now, after the amendments having taken effect, holdback is still permitted. it's still a thing, but it seems as though the wording or the right has been narrowed-- it's only if a contract or a subcontract has been abandoned or terminated. So our take on this is that there are now narrower set of rights against holdback. But one thing that is on the bright side for an owner is that the requirement in the old version of the act to publish a notice if you wanted to set off against holdback or withhold holdback, that requirement has been removed.

And just one more thing before I leave this slide, although it's not on here-- sorry, Kathleen, could you-- yeah, thanks. One more thing before I leave this slide. I'm sure there are people today attending the webinar who are saying, well, what is happening with my contracts that I signed in 2025 or earlier? I mean, am I going to have to scramble to do annual release of holdback even this month if I signed a contract, for example, in January of 2025, the first anniversary could be coming up tomorrow?

And the answer, as Ted had mentioned briefly a few minutes ago, is that no, you're not grandfathered for those contracts, but there are transition provisions to make the adjustment a bit easier. So it's not this first anniversary where you'll have to go through the annual release process-- it'll be the next anniversary. That's for existing contracts. New contracts-- it's not necessary. So that's the way they've tried to make that a bit easier.

Thanks very much. We can go into the next topic. How did the amendments treat invoicing and prompt payment? And what is there that's important for you to understand and for us to talk about today?

The most important change in this area, in my view, is that we all know, and it's still true, that you have 28 days from receipt of a proper invoice to-- if you're the owner, you have 28 days from receipt of a proper invoice from the contractor to pay that contractor.

The new thing that everybody needs to be aware of is that you can no longer wait until toward the end of that 28-day period to raise concerns about the form or content of that invoice-- like missing information, missing documents, there's no release, there's no this or that, there's no WSIB certificate.

You have to raise those issues about the invoice itself within the first seven days after receiving an invoice, or else after seven days, it will be deemed to be a proper invoice. And the one effect of this is that an owner can't game the system and delay payment by telling a contractor very late in the process, oh, well, your invoice isn't a proper invoice, so the clock, the 28-day clock, never started. You have to look carefully at the invoice within the first seven days and identify deficiencies.

The next point I want to cover is that the definition of proper invoice has been tweaked a little bit to include, as it says here, any other information that the owner needs for its AP system to function smoothly, that the owner may ask for. And I'm not sure what it is about the experience of the last few years that has driven this addition, but it makes a lot of sense.

And the old definition already said that the owner could ask for other things in the contract as part of the proper invoice, but this just makes it more explicit that the owner can, at any time, ask for things that it needs to facilitate its process and its AP system working smoothly.

If you get an invoice and seven days pass, under the new Construction Act, as amended, that invoice will be deemed to be a proper invoice. So you need to, as an owner, that is, quickly get on to those invoices and identify deficiencies. I am now going to hand the mic over to my partner Bevin, who will talk about changes to adjudication.

BEVIN SHORES: Thanks very much, Aaron. So since you've all got your polling fingers handy, I thought we'd just start with a couple of icebreaker polls here to get a sense of your experiences with interim adjudication so far. So there's two questions up here. The first one goes to your organization's experience with adjudication so far-- so whether your organization has yet initiated or responded to any interim adjudications under the Construction Act. And the second question there is whether you see interim adjudication as being a useful resource for your organization and resolving disputes.

So we'll just take a moment for those questions to come in. I'll say anecdotally, we're certainly seeing expanded use of adjudication, and we'll see what the poll says, but certainly some varied opinions as to the utility of interim adjudication. All right. So a lot of people in attendance haven't yet had an experience with interim adjudication-- that's quite interesting. And it looks like certainly the thrust of the answers here is that the adjudication utility could be really situation dependent. So thanks for that initial engagement.

The thrust of these changes, as I'll discuss and as you've all likely heard, are intended and moving in the direction of expanding the scope of and introducing increased flexibility to the adjudication process. And I'll start by speaking to a few of those changes, the first of which is the use of private adjudicators.

So in the previous adjudication scheme, parties were limited to the adjudicators listed on the adjudicator registry with ODACC-- that's the Ontario Dispute Adjudication for Construction Contracts. And that's the-- oops, it looks like there's a little issue with the Zoom here, or the PowerPoint slide here.

But previously, there was a limitation on only using ODACC adjudicators. Now parties can use private adjudicators. This appears to be in response to some feedback given at the time of the 2024 independent review, about there being limited selection for adjudicators, and there was a perception that the ODACC rate card was a barrier to some potential adjudicators joining.

So now that these changes are enforced, parties can select private adjudicators. The adjudicators do still need to be qualified by the adjudication authority, and the parties have to agree on this private adjudicator's fee. But the adjudicator is not limited to the ODACC rates. So the ODACC rates currently are between $300 and $850 an hour, and some adjudicators will offer flat fees ranging from $1,300 to $3,700. Frankly, I haven't seen too much of those, but those rates don't apply to private adjudicators, so there's a little bit more freedom to pay more if the parties deem appropriate.

Now, if the parties do not agree on an adjudicator, whether private or registry, the mechanism for ODACC to appoint a registry adjudicator is still in the act-- that hasn't changed. So that's under section 13.9, sub 4. So the thrust of all of this is pretty clearly to open up the pool of adjudicators and allow greater flexibility over who is deciding these interim disputes.

Now, the next change is another one of the really key changes to adjudication, and that's the range of adjudicable issues. Now, these were previously set out in section 13.5, sub 1 of the act-- they're now moved to a regulation. So the previous dispute-- or sorry-- interim adjudication regulation has been repealed and replaced by a new one, Reg 264, sub 25. And the scope of adjudications is in section 19 of that regulation.

And so there are a few key points from that. The first of which is that most of the enumerated issues from the previous version of the Construction Act are still included in section 19. So that's valuation of services and materials, payment under the contract including change orders, notices of non-payment, amounts retained for trustee set-off or lean set-off, and payment of holdback.

What was not ported over is issues for finishing holdback under section 27.1, which, as you've heard from Aaron, has been repealed. And also the provisions setting out that adjudicate-- sorry-- parties could adjudicate any other matter that the parties to the adjudication agree to. So that has not survived these changes, but there is still an expansion. And that's in section 19 sub 1, sub 6, and the last set of bullet points on this slide.

And that provides that any of the following matters-- the three points enumerated with the line bullets-- any of those can be adjudicated if they're reasonably necessary in order to determine another one of the enumerated matters-- so that's scope of work, a request for change in contract price, and a request for an extension of contract time.

I'll just weigh in that we've seen adjudicators, or at least our experience has been, adjudicators taking a very expansive view to the scope of adjudication. And so it would be my expectation that "reasonably necessary" is probably going to be interpreted pretty broadly as well.

Now, before we move on to the next slide, the cross-contract disputes-- there's a little bit of a question mark there-- that was carved out in the act as something that could be adjudicated if the regulations provide. But interestingly, section 19 of the reg doesn't actually provide a specific bullet point for cross-contract disputes.

Arguably, that could potentially be attained by consolidation of disputes, which I'll be speaking to momentarily, but just wanted to flag because that was something that parties or that stakeholders were anticipating was going to be set out in the regs, and it's not one of the enumerated points under section 19 of the reg.

OK, next slide, please. So a couple of other points here on the expanded scope of adjudication-- in limited circumstances, specifically labor and material bonds that are required for public contracts under section 85.1 of the act, those disputes may also be referred to adjudication-- that's under section 33 of the reg. Any party can request a consolidation of related disputes relating to an improvement-- that's under 13.8, sub two of the act. Previously, it was only a contractor that could request consolidation-- now any party may.

And the next expansion is the timing for adjudication. Previously, it was available up to the date of either the contract or subcontract's completion. Now, 90 days is the time frame to remember.

So in the case of an adjudication relating to a contract-- 90 days from contract completion, abandonment, or termination, unless otherwise agreed by the parties. Or in respect of a subcontract, it's 90 days from the earlier of either contract completion, abandonment, or termination.

The subcontract being certified is complete under section 33 of the act, or the last supply of services or materials by the subcontractor. So 90 days from the earliest of either of those in the case of an adjudication that relates to the subcontract. So again, we're seeing an expansion not only in the scope but in the time.

And if we can go to the next slide, I'll just briefly address a couple of new provisions, one of which I think for the legal practitioners involved will be welcomed. Decisions will now be published by the adjudication authority, which is ODACC.

It doesn't look like they're available on their website yet, but as a concession to the parties who may not want to have their affairs aired publicly, the authority is required to ask each party if it should be anonymized, and if any party requests-- it will be. So that certainly gives some ability to see how other adjudicators are approaching issues and potentially aid in risk assessment.

And a couple of other new provisions here. Parties can now object to an adjudicator's jurisdiction or claim they exceeded their jurisdiction. This is already being done in our experience-- it's just now codified in the act. And then last, there is some language similar to what we see in the Arbitration Act in Ontario to allow for corrections within five days of the release of a determination.

So to correct errors, intentional omissions, or slips, sometimes called a "slip rule" or an injustice, which is potentially broad wording, but the thinking is that it is likely to intend-- sorry-- it's likely intended to address procedural fairness issues, as we've seen with some judicial review applications. And so with those changes all summarized for you, I'll turn it over next to my partner, Asif Lasani, and he's going to take you through some of the technical and housekeeping changes.

ASIF LASANI: Thanks, Bevin. So these are just a hodgepodge of changes that are meant to provide certainty and clarity. They really don't fall under any specific category. It's just a cleanup of the act and to keep up with case law and that sort of thing.

So the first definitional change we have is the definition of price. Now under the current act or the then-current act a few weeks ago, if the parties hadn't agreed on a specific price, then the statute defaults to the fair market value. So in theory, that sounded sensible, but in practice, it was a mess. There really isn't a fair market value for partially completed construction contracts, P3 pricing structures, or progressive design-build work. So when disputes arose, everyone ends up arguing about a fictional number that nobody actually agreed to.

So what the amendments do is open the door for the regulations to prescribe a different default price. And this is where the contract is silent. We don't know yet what the pricing framework will look like, but the direction is to hopefully have fewer valuation fights and more predictability.

So the practical takeaway is that if you leave price ambiguous, the statute and not the parties may end up filling in the blanks. Now, owners and contractors should be paying close attention to how pricing is defined in their contracts and watching closely for the forthcoming regulations-- they have not been amended, to my understanding.

So the second change on this slide deals with the change to the definition of a written notice of lien. And this one is much more operational. Now, historically, a payer's obligation to retain what we call "lien notice holdback funds," which is the full amount in a written notice of lien, was triggered only if they received Form 1, which is a formal written notice of lien. Now, that led to some very technical arguments about whether simply receiving a copy of the lien was enough.

So that amendment cleans this up. Now, the payer's receipt of a copy of the claim for lien, a Form 1, is enough to trigger the obligation of a payer to retain the full amount of the lien.

So the next change is with the concept of joinder. So joinder simply means what types of legal claims are allowed to be joined together in one lawsuit. So before 2017, things were relatively clear-- lien claims could be joined with breach of contract claims, but not breach of trust claims against officers and directors for not complying with the trust provisions of the act.

So you have three types of claims. Before 2017, two of them could be joined together, but the third had to be a separate lawsuit. Then the 2017 amendments came along, and nobody was clear or sure at that point what could be joined with what so the amendments are a little ambiguous. Courts weighed in, including divisional court in Devlin, which seems to be the impetus for this change. But the uncertainty has lingered.

So the amendment here restores clarity by expressly allowing the summary lien lawsuit procedure in the act to include joinder of a lien claim with another claim in the action. What kinds of claims? That's left to the regulations. But importantly, those regulations have already been amended to allow lien claims to be joined with breach of trust claims in addition to breach of contract.

So, practically speaking, this reduces procedural fragmentation. There'll be fewer parallel proceedings, fewer jurisdictional fights, and more efficient path to resolution. It's not flashy, but it is a meaningful cleanup. I just wanted to touch on that briefly.

Now, this one fixes a timing problem that caused real-world headaches. Now, previously, the act allowed a party to publish a notice of termination, but there was no deadline for doing so. So if the contract was terminated, either the contractor or the owner had to publish a notice of termination but didn't say when. So that created real uncertainty. If a contract was terminated but no notice was published, lien timelines can remain in limbo. Subcontractors were left guessing about when their lien rights expired or needed to be perfected.

So this amendment now requires that a notice of termination be published within seven days of termination. And just as importantly, it confirms that the date of that publication is the operative date for lien expiry, preservation, and perfection. And I think that's the issue that this amendment addresses. So we now have a clear, predictable trigger point that's good for owners, contractors, and trades, even if it does mean tighter compliance obligations for those administering the contracts.

Multiple improvements-- so this is another clarification that matters a lot more on complex or phased projects. Now under the old regime, parties could agree to treat non-contiguous improvements as separate contracts, but only for the narrow purpose of determining substantial performance. That left open a host of unanswered questions like what happens if one segment is terminated but the others continue? How does prompt payment apply? What about holdback release or lien rights?

So the amendment expands this concept so that if the contract says so-- and that's an important piece-- non-contiguous improvements can be treated as separate contracts for all purposes under the act. So this gives the parties much more control and clarity, but only if they exercise it intentionally in their agreements. So the key message here is that contract drafting now matters even more. If you want segmentation, you need to say so clearly-- if you don't, the statute will treat the project as a single improvement with all the downstream consequences that flow from that.

And then finally, with respect to pre-design construction liens for design professionals, there is a section that's been added where if an owner retains a holdback in respect of a supply of design plan drawing-- so that's key-- if an owner retains a holdback, then the onus is on the owner to prove that the value of the land was not improved for the purposes of lien if the project does not proceed.

So this is reversing the onus that previously exist in the burden to prove that the value of the lien actually enhanced the land. So now it's on the owner, not on the design professional.

I really just went through those quickly because it is a hodgepodge of changes. The idea here is that they're meant to reduce ambiguity, tighten timelines, and push parties towards clearer contracts and cleaner administration. None of these changes alter the fundamental risk allocation in construction, but it does change how disputes get framed, timed, and fought.

TED BETTS: Great! Thank you. Yes, thank you, everybody, for your presentation. Clearly, we're all getting a little used to it. For some it may be the first time you are realizing these changes are coming and how significant they are to the day-to-day of a project. For others, you're already applying it, and you have some detailed questions. And I can see we have a whole bunch of questions, most of which relating to holdback, not surprisingly.

So, Aaron, why don't you start going through-- we've got quite a bit of time, which is great, and we will try to get to all of these. Some of them I've tried to address in direct response, but some of them, I think, will benefit from everybody hearing what the question is and what the answer is. So Aaron, why don't--

AARON HUNTER: So thanks. Thanks, Ted. Lots of questions on my topics, which I could interpret as me being a very engaging speaker, or I could interpret it as me not having done a very good job of explaining the points. I hope it's the first one.

So a few people have asked about the idea of the prime contractor invoicing the owner for annual release of holdback or the need for invoices at any level of the pyramid for that annual release of holdback. And the answer there is no-- it's an owner-initiated, owner-driven process. So there's no requirement for the contractor to submit an invoice, proper or otherwise. It's something the owner is responsible for in the money waterfalls down there.

And I also see that there are a number of questions about the seven days for deemed proper invoice and the 14-day period that owners have to issue a notice of non-payment, and I struggled with this a bit myself when the amendments were first released a few months ago, and I think it could have been handled a little more straightforwardly in the amendments, but I'll explain how we believe it works.

So there is still that 14-day period after receiving a proper invoice, during which the owner can identify problems with the work itself and issue a notice of non-payment relating to the substantive work that has been done that's covered in that invoice. You still have 14 days to do that.

This new 7-day period, as I understand it, is for deficiencies and things that are missing from the invoice itself as a document-- does it not meet the definition of a proper invoice? So that 7-day period is very much about the document, whereas the 14-day period is more about the work. So you haven't lost your right as an owner-- speaking to the owners out there-- you haven't lost your right to issue a notice of non-payment within 14 days.

And I saw there was a question about whether for the annual release, it's still necessary or a good idea to do a lien search. And I think the answer is, if you were-- the rationale is the same as to do a lien search under the old system where liens expire after substantial performance.

If were doing them at that time, and that was your process and your due diligence, I think the rationale-- it's the same argument to do them on an annual basis. Of course, it's more work or time or expense to be doing it so many times. But if that's what you were doing already, I think the answer is yes-- you should continue to do it. So those are the ones I wanted to tackle right away, Ted.

TED BETTS: Great. That's great. Thank you. I think one question I saw about five people ask was whether this is calendar days or business days. These are calendar days. And if a payment date falls on-- and this is statutory interpretation rules-- but if a payment time period finishes on a non-business day, then it bumps to the next business day. But otherwise you count the number of days by calendar.

Bevin, there's a number of questions on adjudication-- did you want to take up any of those? I know you're trying to answer some of them. You've been answering some of them.

BEVIN SHORES: Sorry, yeah. I'm typing away here. So while I'm looking at the adjudication questions, if I can just pick up a thread from one of Aaron's answers just about the anniversary date that would trigger the annual release of holdback, because I've seen a couple of questions on that as well.

It is the prime contract that will dictate that. So if you're a subcontractor, that's going to be one thing that I'd recommend paying particular attention to because it is not always known to subcontractors or those who are lower down the pyramid. So some information to be proactive about obtaining if it's not immediately known to you.

One of the questions with respect to adjudication that I had typed in answer to, but I'll mention live, was whether if you're using a private adjudicator, that would still go through ODACC. ODACC hasn't published any particular policy or procedure on that, but I will mention-- and this is something that probably would have been good to include in my discussion-- largely, the procedures for adjudication remain unchanged.

They're set out in the reg now, so an adjudication is still commenced through ODACC. So if I'm prognosticating-- and I will stand to be corrected if things end up being a little bit different-- private adjudicators will likely at least start using the adjudication portal.

TED BETTS: One of the questions I saw a couple of times was, what's the implication for lenders? So, often we have projects, construction projects, that are funded. And so we're funding progress payments by drawing on a credit facility of some sort. We need to distinguish between lenders who have security in the lands, because when they do, when they have security in the lands, like a mortgage, they are treated as an owner under the act. And so all of these changes would apply to them.

If they have held back, then the rules of release of holdback apply to them. But in most cases, construction financing is done without security on the lands because the lenders tend not to want to get roped up in the lien rules and all of the other provisions of the act that would apply otherwise.

And so in a normal borrowing, there's actually no impact in the act on lenders, but there are implications. You now have a large amount of money that is due once a year that is for work. Remember, this is holdback, so it's work that's already been performed, already been invoiced, already been approved and reviewed and inspected and approved, and paid for up to 90%. And so, the lenders have simply not advanced 10% of the money. And now, at a certain special time of the year, the owner is going to the lenders to ask for a new draw for that holdback that's already presumably been approved.

So you may need to look at your credit agreements and adjust the language to allow for a draw for holdback specifically. And the lenders may have some additional requirements. I would expect they would require a lien search to verify that there are no liens on title, but none of that is coming out of the act. That's a practical understanding of how a credit agreement would work, and you'll have to look at your credit agreement to look at how it might need to be amended.

ASIF LASANI: I've seen a few questions in here about the trigger for the release of the holdback back annually, and whether an invoice is required, and can you require that invoice in your contract? So these are my thoughts. I think that the act is compulsory when it says that the owner shall release.

So I don't think an invoice is required-- I think it's compulsory. And that goes for the subcontractors as well. That said, I think it would probably be best practice to submit an invoice so you trigger the proper invoice consequences of the act. So I think they would run in parallel. But those are just my initial thoughts on seeing the questions. And I don't think you can put that in your contract to make a proper invoice, a precondition to paying that annual holdback.

TED BETTS: I agree with you. The act is very explicit. The owner will pay on a certain time. So that's a mandatory obligation to pay. In your contract and for convenience or practicality or business process, I don't think there's anything that stops you from asking your contractor to provide a statement, or you can call it an invoice. It's just a piece of paper that confirms that the holdback amount is agreed because you want to avoid a disagreement on the amount of the holdback.

But the owner should be aware that they do not-- if that invoice or statement or whatever you put in your contract is not provided-- it does not change your statutory obligation to pay within the time period for annual payment of pullbacks.

AARON HUNTER: Ted, it might be worthwhile to just press to revisit the question of what happens to existing prime contracts that were signed in 2024 or 2025-- what happens in terms of the annual release of holdback and the transition provisions? So let me just try and summarize that again.

If the prime contract was signed up, let's say in 2024 or 2025, it will have an anniversary that happens in 2026. The anniversary could be today or tomorrow even. But the amendments say that for those existing contracts, the first anniversary where you have to worry about-- where you as the owner need to worry about-- doing the annual release of holdback will be the next one that occurs in 2027, not this one.

So whether it's a brand-new contract that you're entering into right now, or it's a contract that's existed for a couple of years, there shouldn't be anybody doing annual releases of holdback right now. I guess that's what it means. Nobody will be doing them in 2026-- it'll be getting going in 2027.

And as for, what is the actual anniversary date? A couple of people have asked that-- I think it's the effective date of the contract to the extent it can be determined-- the date at the top of the front page-- you don't have to hopefully get into a discussion or an investigation of who signed it on what day. It's simpler than that.

TED BETTS: One question there about what percentage is released on an annual basis-- it's all of it that's accrued in that year. So think of 12 months of work and 12 months of invoices. Each invoice is paid. Let's say there's no disputes-- 90% of each invoice is paid. You know exactly amount that has to be released. It's all of that holdback that's been accrued during that calendar year gets released on the annual basis.

AARON HUNTER: I see an interesting one here about the annual release of holdback. Ted, someone is commenting that they work at a university, and for their internal processes and rules, they can't do anything unless they receive an invoice. They can't just unilaterally initiate the payment that is the annual release of holdback. So in that case, I think it would be wise and appropriate to say in the contract, listen, we as the owner, we know we have this obligation, but to facilitate it for administrative purposes, we need you to submit something. That's how I would deal with that.

TED BETTS: Agreed-- bearing in mind that it still does not change your statutory obligation to pay.

AARON HUNTER: That's right.

ASIF LASANI: If they choose not to invoice for some reason, maybe just administrative oversight, you still have that obligation to release. So I would suggest that processes need to be amended for that reason.

TED BETTS: Yeah, the act does not care what your accounting restrictions are-- your accounting system restrictions are. Well, obviously everybody's got different accounting systems in payment systems, but if you have an ability to defer payment or defer partial payment, that's really what a holdback is. It's a deferred payment because the work-- we've already approved and paid for it up to 90%.

And so if you have a system that can-- at the time you're making the initial payment and you receive the initial invoice-- can defer it to a specified date, then that may be one way to deal with it. Otherwise, like I said earlier and Aaron just said, there's nothing stopping you from adding a requirement for-- call it an invoice if you want, or call it a statement-- but something that triggers the internal administrative function that you need isn't blocked by the act. It's just kind of irrelevant to how the act works.

There's a question about other kinds of holdbacks. Ever since we had the mandatory payment of holdback introduced in 2018, we've had a lot of people looking at how do we retain funds to ensure that contractors and subcontractors come back to do the maintenance work that they need to do, or the repair or warranty work, sort of a leverage.

The holdback is not designed for that purpose, although we all know in the industry that it has often been used for that purpose. And this makes it harder, even harder now, to use holdback for other purposes other than just protection of contractors and subcontractors. So what can you do? Some parties have started introducing different ways of providing for additional protection, security holdback for that kind of work, that finishing work, that warranty work, or maintenance work.

Nothing in the act stops you from adding holdbacks. It becomes a commercial question, really, because you're adding cost to the project, because a contractor is always going to have to price that in and how that gets how that warranty gets-- that warranty bond, you could take out a bond. Lots of people take out warranty bonds, for example. How you fund that obligation is another question that's a commercial decision to be made.

So there are lots of options, and we've been engaged on many contracts to draft in something that tries to balance the interest of the owner in ensuring that trades come back to do the warranty work. And if they don't, that you've got the pool of funds available, but also balances that against taking away too much of the cash flow from contractors who are relying on those payments. So we're happy to talk with anybody about individual solutions that we've come up with on those kind of situations.

AARON HUNTER: Ted, just related to what you were just discussing, I see a question that I don't think has been answered already about annual release of holdback, reducing the leverage that owners have to ensure proper execution of the contract. And I'd like to touch on that briefly. I think it's correct-- yes. When holdback is being released or bled off every year, the owner isn't holding a big lump of money the way-- the owner won't be holding a big lump of money the way it was before.

But holdback was never-- statutory holdback, that is-- was never designed to be used as owner's leverage in that way. We all know that in the real world, it sometimes has that dynamic. It often has that dynamic, but that's not the purpose of it. So if you, as the owner, perceive that you're going to have less leverage because of these changes, you can find other ways in the contract to boost your leverage back up through a milestone payment structure, for example. And we could discuss the details if you like. But yeah, it does reduce the leverage, but that's not what it was for in the first place.

BEVIN SHORES: Just popping up with one question from the chat about whether there's a transitional provision for the changes to the set-off against holdback change. The short answer to that is no. So there are, and we've been answering quite a few questions in the chat about the transitional provision for the annual release of holdback.

And if anyone's curious and has a lot of time on their hands, it's under section 87.4 of the Construction Act. But the question to answer is is there that kind of transitional provision for the changes to the set-off against holdback provisions? And the answer to that is no-- those are effective immediately.

And while I'm talking about some of the transitional provisions, and this kind of dovetails with some of the things that we've discussed before, but just about what is the trigger for the anniversary date that sets the transitional provision in the annual release of holdback? It is the date that the contract was entered into-- that's the phrasing that's used under in the transitional provision under the act. So not the date that work was initiated or any other date-- that's the date the contract was entered into that sets the anniversary for purposes of transitional provisions.

TED BETTS: Was an interesting question about a practical question, which I always like. One of the changes in Bill 60 in November was that it's now the owner who publishes the notice of holdback release. Obviously, there's a lot of different owners out there. Some of them have robust and sophisticated teams and do a lot of construction. And probably that's not an issue at all-- let's just go publish. We know how to do that.

Others less so-- they don't routinely work on construction projects. They probably wouldn't have a clue where and how and what form a notice needs to be published and how to go about doing that. And so can you get somebody else to do that? It's a tricky question because I think technically the act does not say there's a way to delegate that. The act says it's the owner who has to publish.

And so there's a question of whether the period of time properly starts if you delegate it to your general contractor. But I think that's really a technical question because if the owner is going to respect that notice and start counting the days from that, they're going to pay on that 60th day, or 60 to 74th day after the notice is published. And there's nobody to complain. There is no complaint because the payment's been made. And so I don't think it ends up being an issue that you've delegated that-- it's the publication that matters.

It would have been a very different answer, I think, if Bill 60 had not taken away the expiration of lien rights at the end of that 60-day period. So in the original amendments, there was going to be an expiration of the lien rights attached to the annual release of holdback. So the lien rights that arose during that year would expire, and in which case you are taking some rights and protections away.

And it would have, I think, been much more important to get the technical compliance correct. In this case, when you pay does not change anybody's lien rights. And so I don't think there's going to be a real complaint on that. But technically, it's the owner that has to do that.

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