I Once Was Lost But Now I’m Found: Ontario Government to Amend the Construction Act via Bill 57, the Restoring Trust, Transparency and Accountability Act

On November 15, 2018, the Ontario Legislative Assembly introduced Bill 57, the Restoring Trust, Transparency and Accountability Act, 2018. This omnibus bill was prepared as part of the 2018 Ontario Economic Outlook and Fiscal Review, which is the current Government’s stated “Plan for the People”. If passed, the Bill would amend the Construction Act (the “Act”).

Overview of Changes

Specifically, Schedule 8 of Bill 57 modifies the Construction Act. The Explanatory Note to Bill 57 refers to the following key changes:

• Modification to the Transition Provisions (s. 87.3);
• Modification to the Powers and Duties of the Authorized Nominating Authority (s. 13.3);
• Modification to the applicability of Adjudication procedures (s. 13.6);
• Modification to the delivery of documents in an adjudication and the right of reply (s. 13.11);
• Modifications to the obligations in circumstances of non-payment of holdback (s. 27.1); and
• General housekeeping modifications.

Our preliminary review of these proposed changes indicates that improvements have been made to the Construction Act based on feedback provided since the Act received Royal Assent in December of 2017.

Transition Provisions

Questions have been raised about the transition provisions of the Act (i.e. Section 87.3) and in Bill 57 the government has clarified the transition provisions. Section 19 of Schedule 8 to Bill 57 proposes to repeal Section 87.3 and replace it as follows:

Transition 

Continued application of Construction Lien Act and regulations 

87.3 (1) This Act and the regulations, as they read on June 29, 2018, continue to apply with respect to an improvement if, 

(a) a contract for the improvement was entered into before July 1, 2018;

(b) a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises; or 

(c) in the case of a premises that is subject to a leasehold interest that was first entered into before July 1, 2018, 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 the day subsection 19 (1) of Schedule 8 to the Restoring Trust, Transparency and Accountability Act, 2018 came into force. 

Same 

(2) For greater certainty, clauses (1) (a) and (c) apply regardless of when any subcontract under the contract was entered into. [Emphasis added]

The changes to the transition provisions (s. 87.3(1) and (2)) are to address the varying interpretations applied in relation to when the new Act applies as opposed to the old Act in relation to a leasehold interest. 

Perhaps more significantly, a key change relates to what a procurement process is, which is directly addressed by the following amendment to Section 1(4) of the Act:

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

Previously, examples of what constituted a “procurement process” were provided under Section 87.3. With the new definition, any ambiguity has been eliminated in that a procurement process is clearly delineated and limited to a restricted class of initiating documents.

In addition, the government has added two new sections to 87.3 , being 87.3(3) and 87.3(4), as follows:

Exception, municipal interest in premises 

(3) Despite subsection (1), the amendments made to this Act by subsections 13 (4), 14 (4) and 29 (2) and (4) of the Construction Lien Amendment Act, 2017 apply with respect to an improvement to a premises in which a municipality has an interest, even if a contract for the improvement was entered into or a procurement process for the improvement was commenced before July 1, 2018.

Non-application of Parts I.1 and II.1

(4) Parts I.1 and II.1 do not apply with respect to the following contracts and subcontracts: 

1. A contract entered into before the day subsection 11 (1) of the Construction Lien Amendment Act, 2017 came into force. 

2. A contract entered into on or after the day subsection 11 (1) of the Construction Lien Amendment Act, 2017 came into force, if a procurement process for the improvement that is the subject of the contract was commenced before that day by the owner of the premises. 

3. A subcontract made under a contract referred to in paragraph 1 or 2.

The intent of section 87.3(3) is to impose certain conditions in relation to an improvement to a premises in which a municipality has an interest. For example, Section 13(4) (i.e. the provision which imposes Section 16 – Crown, municipal interest in premises) and Section 29 (4) (i.e. the requirement that a copy of a claim for lien be given to the clerk of a municipality, where the owner is a municipality).

Perhaps most importantly for the industry, in relation to Section 87.3(4), the government has amended the provision such that that the prompt payment and adjudication provisions do not apply to a contract/subcontract entered into on or after October 1, 2019, if a procurement process was commenced before that day by the owner.

Right to Information

As a supportive amendment, Bill 57 also amends Section 39 of the Act by revising Section 39(1)1.i as follows:

i. the names of the parties to the contract, the date on which the contract was entered into and the date on which any applicable procurement process was commenced,

The new addition to Section 39 provides that the specified persons are entitled to be told the date(s) that the contract and/or subcontract was entered into and the date on which any procurement process was commenced. In conjunction with the modifications to the transition provision, this provides allows construction industry participants to seek further clarification as to when the old Act or new Act applies.

Adjudication 

While the adjudication provisions have not yet come into force, the government has taken advantage of the transition period to make certain housekeeping changes in relation to Part II.1 of the Act. 

One of the significant changes is in relation to Section 13.3 of the Act which sets out the Duties and Powers of the Authorized Nominating Authority. As stated in the Explanatory Note to Bill 57, the government proposes to modify the language to “broaden the powers of the Authorized Nominating Authority”. In particular, Bill 57 modifies Section 13.3(2)(a), which relates to the Powers of the Authority, to read as follows:

(a) subject to the regulations, set fees, costs or other charges related to the administration of adjudication under this Part, including fees, costs or charges for the training and qualification of persons as adjudicators or for the appointment of adjudicators, and require their payment; and

Previously, the Authority only had the power to “set fees for the training and qualification of persons as adjudicators and for the appointment of adjudicators, and require their payment”. 

In addition, Bill 57 adds Section 13.3(3) and (4) which provide as follows:

(3) In setting the fees, costs and charges referred to in clause (2) (a), the Authority may, subject to the regulations, specify their amounts or the method for determining the amounts.

(4) Money collected by the Authority under clause (2) (a),

(a) is revenue belonging to the Authority and not public money within the meaning of the Financial Administration Act; and

(b) may be retained and used by the Authority for its own account.

By way of clarification, Section (4) provides that the fees, costs or charges collected by the Authority are not public money and may be retained by the Authority. 

In relation to Adjudication Procedures, Bill 57 modifies Section 13.6 to clarify the applicability of the Act, Regulations and contract based procedures. The modified Section 13.6 provides as follows:

13.6 (1) An adjudication shall be conducted in accordance with the adjudication procedures set out in this Part, the regulations, and, subject to subsection (2), any additional adjudication procedures that may be set out in the contract or subcontract. 

Same (2) Adjudication procedures set out in a contract or subcontract apply only to the extent that they do not conflict with this Part and the regulations, and their application is subject to the exercise of the adjudicator’s powers under section 13.12.

The new language clarifies that parties can include adjudication procedures in their contracts as long as they do not conflict with those set out in the Act and the Regulations. 

A further addition, and an appropriate one, are the modifications to Section 13.11 and the addition of Section 13.11.1. Section 13.11 imposed an obligation on the referring party to deliver documents to an Adjudicator following a notice of adjudication. The new Section 13.11 requires the documents to be delivered to both the Adjudicator and the responding party as follows:

Documents to adjudicator, party 

13.11 No later than five days after an adjudicator agrees or is appointed to conduct the adjudication, the party who gave the notice of adjudication shall, 

(a) provide to the adjudicator a copy of the notice; and 

(b) provide to the adjudicator and to the other party a copy of the contract or subcontract and any documents the party intends to rely on during the adjudication.

In addition, and previously not included in the Act, is the addition of a right of reply for the responding party. In the Act, once the referring party has delivered its documents there has been no statutory right for that party to reply. Rather, the right of reply was governed by the Adjudicator under the Regulations. Now, Section 13.11.1 provides as follows:

Response to notice 

13.11.1 A party who receives a notice of adjudication may, in accordance with the regulations, respond in writing.

This provision should alleviate any concerns potential responding parties may have had about not having an adequate opportunity to respond.

Non-Payment of Holdback

The final key change to the Act relates to Section 27.1 (Non-Payment of Holdback). According to the Explanatory Note, the intent was 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.” (i.e. refers the matter to adjudication and provides notice of non-payment).

In relation to the release of holdback, Bill 57 clarifies the timeline for the publication of a notice of non-payment of holdback to also run from the date on which the contract is completed, abandoned or terminated.

Other Housekeeping

In addition to the above, Bill 57 also addresses a number of inconsistencies with the French translation of the Act, and makes some minor modifications to the requirements for the contents of a certificate of substantial performance (e.g. the description of the lien). 

Next Steps

We, like many others in Ontario’s construction industry, will closely follow Bill 57 as it moves forward through the legislative assembly.

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