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The Government of Canada, through Public Services and Procurement Canada (“PSPC”), announced on August 2, 2018 that the executive summary of the report prepared by Bruce Reynolds and Sharon Vogel of Singleton Urquhart Reynolds Vogel LLP (“Singleton Reynolds”) titled Building a Federal Framework for Prompt Payment and Adjudication, is now public. The executive summary is available here. The full report is available upon request by making a request here.
Singleton Reynolds was retained in January of this year in order to conduct an expert review which included a series of stakeholder engagement sessions and the development of a recommendations package for the federal government regarding promptness of payment and adjudication in relation to federal construction projects (“Federal Review”).
The team held 55 stakeholder engagement sessions with over 500 participants across Canada between March 6 and April 25, 2018 which resulted in positive dialogue with all levels of the construction pyramid. Following those sessions, formal submissions were received from some stakeholders as well as a variety of letters of support from local associations or member associations’ for submissions made at the national level.
The feedback received became the basis for the recommendations package (in the form of a report), which was delivered to PSPC on June 8, 2018. The package includes 53 recommendations in relation to the introduction of prompt payment and adjudication legislation.
“It has been an honour to have been involved in this federal initiative and to have had the opportunity to engage with stakeholders and PSPC to create this recommendation package,” said Vogel.
“We’re just starting to see the changes to the Ontario Construction Act roll out,” commented Reynolds, “and the Government of Canada will be moving ahead with its legislation in the Fall. At the same time, other Provinces and Territories are considering the issue of prompt payment and adjudication, and the leadership role undertaken by the federal Government will be an important factor in the evolving situation.”
A particularly important aspect of the transition process in relation to the Construction Act R.S.O. 1990, Chapter c. C.30 (the Act) relates to the new regulations under the Act. In this article we explain these regulations and their effect.
Specifically, there are four new Regulations (referred to below as the “New Regulations”), as follows:
Each of these four regulations bears a note regarding when it comes into force. Generally, Regulations 302/18, 303/18 and 304/18 come into force on July 1, 2018, and Regulation 306/18 comes into force on October 1, 2019 (the same day that Part II.1 (Construction Dispute Interim Adjudication) has been proclaimed to come into force. Further details regarding the coming into force of the new regulations are provided below.
Also regarding the coming into force of the New Regulations, although the Construction Lien Act was amended by the Construction Lien Amendment Act, 2017, 2017, c. 24 (the Amendment Act) and not repealed, pursuant to section 88 of the Construction Act, section 15 of O. Reg. 304/18 revoked former Regulation 175 (General), R.R.O. 1990 as of July 1, 2018.
Some commentators have raised a concern regarding the applicability of the New Regulations, and in particular Regulations 302 and 303, to matters arising before July 1, 2018. Given that many procurement processes, contracts, preserved and perfected liens, and lien actions, existed prior to July 1, 2018, the issue as to whether Regulation 175 or Regulations 302, 303 and 304 apply to contracts entered into before that date is clearly a significant one.
The starting point in respect of the proper interpretation of the Act and the regulations lies, of course, in the Act itself, and specifically Sections 87.3 and 88.
Section 87.3 (Transition), provides that the Act, as it read immediately before July 1, 2018 continues to apply with respect to an improvement if a contract for the improvement was entered into before that day, regardless of when any subcontract under the contract as entered into, a procurement process for the improvement was commenced before that day by the owner of the premises, or the premises is subject to a leasehold interest and the lease was entered into before that day (section 87.3(1)). Examples of the commencement of a procurement process include the making of a request for qualifications, a request for proposals, or a call for tenders (section 87.3(2)). Prompt payment and adjudication apply in respect of contracts entered into after October 1, 2019, and any subcontracts entered into under those contracts (section 87.3(3)).
Section 88(1) (Regulations) provides the regulation making authority in relation to the Act. It is worth quoting:
The Lieutenant Governor in Council may make regulations respecting any matter necessary or advisable to carry out effectively the intent and purpose of this Act, including regulations,
(a) respecting anything that, under this Act, may or must be prescribed by regulation;
(b) prescribing forms and providing for their use. [Emphasis added]
Accordingly, the regulations must be read consistently with the “intent and purpose” of the Act.
In regards to the applicability of the regulations to contracts entered into before July 1, 2018, therefore, the preferred interpretation is that, in regards to the “giving” of liens to offices of the Crown, the applicable forms, and the publication of certificates and declarations of substantial performance, Regulation 175 remains applicable in circumstances where
(i) a contract was entered into before that day;
(ii) a procurement process for the improvement was commenced before that day by the owner of the premises; or
(iii) a lease was entered into before that day.
Also significant in considering the regulations is the Legislation Act, 2006, S.O. 2006, c. 21, Schedule F. The relevant general principles of the Legislation Act, 2006 are as follows.
Part III (Regulations) and Part VI (Interpretation) the Legislation Act, 2006 provide, among other things, that:
2. Unless otherwise provided in a regulation or the Act under which the regulation is made, the revocation of a regulation takes effect at the first instant of the day of revocation (section 23(3)).
3. The repeal of an Act or the revocation of a regulation does not affect the previous operation of the repealed or revoked Act or regulation; does not affect any right, privilege, obligation, or liability that came into existence under the repealed or revoked Act or regulation; and does not affect a proceeding or remedy in respect of such a right, privilege, obligation or liability (section 51(1)).
4. A proceeding or remedy may be commenced, continued and enforced as if the Act or regulation had not been repealed or revoked (section 51(2)).
5. If a regulation is revoked and replaced (or an Act is amended):
a. A person authorized to act under the former regulation (or Act) has authority to act under the corresponding provisions, if any, of the new or amended one until another person becomes authorized to do so (section 52(2));
b. Proceedings commenced under the former regulation (or Act) shall be continued under the new or amended one, in conformity with the new or amended one as much as possible (section 52(3)); and
c. The procedure established by the new or amended regulation (or Act) shall be followed, with necessary modifications, in proceedings in relation to matters that happened before the replacement or amendment (section 52(4)).
d. If an Act under which a regulation has been made is amended, the regulation remains in force to the extent that it is authorized by the amended Act (section 52(6)).
6. The power to make regulations includes the power to revoke or replace them from time to time (section 54(1)).
7. The repeal, revocation or amendment of a regulation (or Act) does not imply anything about the previous state of the law or that the regulation (or Act) was previously in force (Section 56(1)), and the amendment of a regulation (or Act) does not imply that the previous state of the law was different (section 56(2)).
8. A reference to an Act or regulation is also a reference to each provision of the Act or regulation (section 58(1)), and a reference in the Legislation Act, 2006 to amendment is also a reference to repeal or revocation (section 1(2).
9. An Act or regulation shall be interpreted as remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects (section 64(1) and (2)).
10. Deviations from a form whose use is required under an Act do not invalidate the form if, a) they do not affect the substance and are unlikely to mislead, and b) the form is organized in substantially the same way as the form whose use is required (section 84).
All four new regulations were filed on April 23, 2018, but each contained specific provisions as to when they would come into force (as noted below).
As will be discussed further below, the Amendment Act amended the Construction Lien Act, by adding certain sections and Parts, repealing and substituting (replacing) certain sections, and repealing but not substituting (replacing) certain sections.
The application of the foregoing general principles from the Act and the Legislation Act, 2006 to the regulations includes the observation that, with the exception of Regulation 306/18, and certain sections of Regulation 303/18 and 304/18, the new regulations came into force at the first instant of July 1, 2018 and Regulation 175, R.R.O 1990, was revoked at the first instant of July 1, 2018; however, as noted above, in relation to its limited subject matter(s), Regulation 175 remains applicable pursuant to section 87.3 of the Act and sections 23(3) and 52(6) of the Legislation Act, 2006. Within this context, and keeping in mind that the Act and the regulations are to be interpreted as remedial and be given such fair, large and liberal interpretation as best ensures the attainment of their objects, consideration of the regulations indicates that the following conclusions may be drawn.
Regulation 302/18 came into force on July 1, 2018 (as per section 15 of the regulation).
Regulation 302/18 is a new regulation, into which the procedures for actions under Part VIII were transferred, the Amendment Act having repealed sections 53 through 57 and sections 59 through 61 of the Construction Lien Act. The intention here was to transfer certain procedural elements of the Act into a regulation so as to render future amendment easier.
As noted above, pursuant to Section 87.3, the Act as it read immediately prior to July 1, 2018 continues to apply with respect to an improvement if a contract for the improvement was entered into before that day, a procurement process for the improvement was commenced before that day by the owner of the premises, or the premises is subject to a leasehold interest and the lease was first entered into before that day.
At the same time, keeping in mind that, pursuant to the section 51 of the Legislation Act, 2006 a reference to an Act or regulation is also a reference to each provision of the Act or regulation, the repeal of sections 53 through 57 and 59 through 61 of the Construction Lien Act does not affect the previous operation of the repealed sections; does not affect any right, privilege, obligation, or liability that came into existence under those sections; and does not affect a proceeding or remedy in respect of such a right, privilege, obligation or liability. Furthermore, a proceeding or remedy in respect of such a right, obligation or liability may be commenced, continued and enforced as if those sections had not been repealed.
In other words, the effect of section 87.3 of the Act and the provisions of the Legislation Act, 2006 are consistent and mutually supportive.
Acordingly, lien proceedings that existed prior to July 1, 2018 may be continued under sections 53 through 57 and 59 through 61, and these sections will also apply in respect of proceedings in regards to contracts entered into before that date. Having said this, it is submitted that, in any event, there are no major differences between the procedures set out in sections 53 through 57 and sections 59 through 61, on the one hand, and Regulation 302/18 on the other.
With the exception of sections 3 (notice(s) of non-payment) and 4 (Table references to notice(s) of non-payment forms), which come into force on October 1, 2019, Regulation 303/18 came into force on July 1, 2018 (as per section 5 of the regulation).
To the extent that a question has arisen with regards to whether the old forms of the new forms should be used in respect of contracts entered into before July 1, 2018, as noted above the old forms, as they read immediately before that day, should continue to be utilized. This is because, in respect of the coming into force of Regulation 303/18, section 87.3 of the Act under which Regulation 303/18 is made “provides otherwise” in relation to contracts entered into before July 1, 2018 (as per sections 23(3) and 52(6) of the Legislation Act, 2006). Regarding contracts entered into after July 1, 2018, as of the first instant of July 1, 2018 Regulation 303/18 replaced the forms that were previously part of revoked Regulation 175, R.R.O. 1990. As such, the new forms should be utilized from July 1, 2018 onwards in regards to contracts entered into after that date.
In any event, pursuant to Section 84 of the Legislation Act, 2006, even if the new forms were to be treated as applicable to contracts entered into before July 1, 2018, deviations from the new forms will not invalidate the form if, a) they do not affect the substance and are unlikely to mislead, and b) the form is organized in substantially the same way as the form whose use is required.
Regulation 304/18, contains the following provision regarding its coming into force:
(2) Section 4 [which relates to the electronic delivery of notices of non-payment] comes into force on the later of the day section 7 of the Construction Lien Amendment Act, 2017 comes into force and the day this Regulation is filed. [October 1, 2019] [square bracketed content added]
(3) Section 14 [which provides for certain amendments to the regulation] comes into force on the later of the day subsection 11 (1) of the Construction Lien Amendment Act, 2017 comes into force and the day this Regulation is filed. [October 1, 2019] [square bracketed content added]
Regulation 304/18 is, in part (sections 1 and 11) a replacement regulation, and, in part, a new regulation (sections 2-10, 12-16).
Section 1 provides a replacement definition of “construction trade newspaper” while section 11 replaces the former regulation in regards to the “giving” of liens to the Crown (replacing those elements of revoked Regulation 175). The other sections of Regulation 304/18 are new, and address: minimum surety bond limits for Alternative Financing and Procurement Projects; notices of non-payment (a section that comes into force on October 1, 2019); payment of holdback on either an annual or a phased basis; publication of notice(s) of non-payment under section 27.1 (a section that comes into force on October 1, 2019); the publication of certain other notices (sections 8, 9 and 10); the $500,000 threshold for the application of section 85.1 (mandatory surety bonds); the exclusion of nuclear facilities from the Construction Act; amendments to the regulation; revocation of other regulations; and the coming into force of the regulation (as noted above).
To the extent that Regulation 304/18 replaces (sections 1 and 11), it is worth noting that, pursuant to Section 52 of the Legislation Act, 2006:
a. A person authorized to act under the former regulation will have authority to act under the corresponding provisions of the new one (until another person becomes authorized to do so);
b. Proceedings commenced under the former regulation shall be continued under the new regulation, in conformity with the new regulation as much as possible; and
c. The procedure established by the new regulation shall be followed, with necessary modifications, in proceedings in relation to matters that happened before the replacement.
At the same time, to the extent that Regulation 304/18 introduces new regulations (sections 2-10, 12-16), except for those sections that by its express terms come into force on October 1, 2019, it is in force. Regarding its new subject matter, which relates to new sections of the Construction Act, it should not present transitional difficulties.
Regulation 306/18 comes into force on October 1, 2019 (as per section 26 of the regulation).
Regulation 306/18 is also a new regulation. As per its title, it relates only to adjudication, and will come into force contemporaneously with the coming into force of Part II.1 on October 1, 2019. Again, given its subject matter, Regulation 306/18 should not present transitional difficulties.
To the extent that any residual question exists with relation to the status of the regulations in the transitional process, it is also important to note that section 88(2) of the Act provides that the Lieutenant Governor in Council may make regulations for such transitional matters as Lieutenant Governor in Council considers necessary or advisable in connection with the implementation of the Amendment Act).
As noted above, the new regulations under the Construction Act R.S.O. 1990, Chapter c. C.30 are a particularly important aspect of the transition process. We hope that this briefing note has been of assistance to the reader in becoming familiarized with the role played by the regulations in the transition process.
Sweeping changes have been made to Ontario’s Construction Lien Act which has been re-named the Construction Act. These changes are coming into effect in two phases. The first phase will come into force on Canada Day – July 1, 2018. This phase involves the introduction of modernization provisions which encompass:
(1) amendments to the definitions under the Construction Act;
(2) amendments related to lien, holdback, and trust rules and procedures; and
(3) the introduction of surety bonding provisions.
In addition, the current regulations (R.R.O. 1990, Reg. 175) will be revoked and three new Regulations will come into force. This article offers a brief overview of the above noted changes which are taking effect on July 1, 2018 as part of Phase 1.
The second phase will involve the introduction of prompt payment and adjudication provisions which will come into force on October 1, 2019.
Key amendments to the Definitions section under the Construction Act (s. 1 (1)) include changes to the definitions of “improvement”, “price”, “contractor” and “subcontractor”, as well as the addition of the new defined terms “capital repair” and “direct costs”. Furthermore, the new subsection 1.1 (1) of the Act introduces provisions concerning alternative financing and procurement arrangements (“AFPs”).
Improvement and capital repairs
Under the Construction Act, an “improvement” includes “repairs”. The amended definition of “improvement” (in tandem with the new defined term “capital repair”) clarifies the types of repair that are subject to the lien provisions of the Construction Act. The amended definition of “improvement” specifies that it includes only “capital repairs”, defined as “any repair intended to extend the normal economic life of the land or of any building structure or works on the land, or to improve the value or productivity of the land, building, structure or works, but does not include maintenance work performed in order to prevent the normal deterioration of the land, building, structure or works or to maintain the land, building, structure or works in a normal, functional state.”
Price and direct costs
The new Construction Act also amends the definition of “price” so as to clarify what is included in “the price of those services or materials” for which a lien can be registered. The amended definition of “price” – in tandem with the new definition of “direct costs” – specifies that, where a contractor is not responsible for the delay, extended duration costs associated with the supply of services or materials are included, while indirect costs, such as overhead costs, loss of profit, productivity, or opportunity are not lienable.
Contractor and subcontractor
The definitions of “contractor” and “subcontractor” are amended so as to include joint ventures “entered into for the purposes of an improvement or improvements.”
As of July 1, 2018, and subject to the transition rules under Section 87.3 of the Construction Act:
Among the most significant amendments coming into force July 1, 2018, are the new provisions concerning AFP projects under section 1.1 of the Construction Act. These provisions clarify how the Construction Act applies to AFP projects by providing that the special purpose entity (or “Project Co.”) that contracts with the public sector entity for a given project is deemed to be the owner of the premises and the contract between Project Co. and the contractor is deemed to be the contract for the purpose of certain provisions under the Construction Act, including:
The new Construction Act makes it mandatory for an owner to release the statutory holdback once the lien period has expired, unless the owner publishes a notice of non-payment in a construction trade newspaper within 40 days of the publication of the certificate of substantial performance, and notifies the contractor of its publication within three days.
Furthermore, the new Construction Act provides for the release of holdback funds on an annual or phased/milestone basis, where the contract provides for such release and the applicable conditions are satisfied, namely:
Section 8.1 of the Construction Act introduces a number of new requirements for contractors in respect of project trust funds, including more onerous record-keeping provisions whereby contractors must maintain written records detailing:
Trustees will be required to deposit project trust funds into a trust account in the trustee’s name. The new Construction Act permits a trustee of multiple trusts to deposit separate project trust funds into a single bank account, provided that records of each trust fund are properly maintained. Furthermore, separate trust funds deposited into a single bank account are deemed to be traceable.
Under section 85(1) of the new Construction Act, contractors that enter into a contract with a public sector entity will be required to provide a performance bond and a labour and material payment bond where the contract price is $500,000 or more (the contract price is prescribed in the new O. Reg. 304/18, which comes into force on July 1, 2018). There are certain limits placed on bonds in relation to AFP projects (i.e., a minimum coverage limit of (a) 50% of the contract price, if the contract price is $100,000,000 or less; or (b) $50,000,000, if the contract is more than $100,000,000).
In addition to the changes to the Construction Act itself, there are several major changes to the structure of the regulations under the Construction Act. In particular, the current General Regulations to the Construction Act (R.R.O. 1990, Reg. 175) will be revoked effective July 1, 2018, pursuant to section 15 of the new O. Reg. 304/18. Three new regulations are coming into force on July 1, 2018:
– O. Reg. 304/18, which addresses general matters;
– O. Reg. 303/18, which addresses the prescribed forms under the Construction Act; and
– O. Reg. 302/18, which addresses procedures for actions under Part VIII of the Construction Act.
Importantly, procedures and rules of court that were formerly described under the Construction Act were moved to the O. Reg. 302/18. A further regulation (O. Reg. 306/18) in relation to Adjudication will come into force on October 1, 2019.
In addition to the key changes outlined in the foregoing, all participants in construction projects must be aware of the transition provisions set out under section 87.3 of the new Construction Act. The transition provisions are discussed in some detail in our article entitled Somewhat Lost in Transition?, which can be found here.
Each of the above changes will present new complexities to participants in the construction industry, however, these complexities can be addressed with the assistance of counsel.
This article was prepared for information purposes only and although it was prepared by professionals, it does not constitute legal or professional advice. If legal or other professional advice is required, legal services should be sought.
 Construction Lien Act, R.S.O. 1990, c. C.30 (the “Act”).
Since the early 1980s, Ontario’s Construction Lien Act (the Act) had not been holistically reviewed, due in part to a lack of industry consensus. Latterly, a movement had emerged that strongly advocated the legislation of prompt payment.
In early 2015, the Province of Ontario retained us to conduct an expert review (Review), which was to include broad consultation focusing on the issues of modernization, promptness of payment, and efficiency of dispute resolution.
The issue was a) how to conduct an effective consultation process with the construction industry, including contractors, subcontractors, organized labour, suppliers, public and private owners, and others, b) how to identify and properly consider all the relevant issues, and c) how to produce a report that was appropriate to our mandate.
We proceeded to develop a Stakeholders List, and an Issues List, and provide the Stakeholders an Information Package. We then received Stakeholder Submissions and held 30 Consultation Meetings with over 60 Stakeholder groups. As the Review progressed, and the number and the complexity of issues grew, we convened a 15-member expert Advisory Group to discuss the key issues, while direct Stakeholder consultations continued in parallel. On April 30, 2016, we delivered our Report, titled “Striking the Balance”, making 101 recommendations, including the adoption of prompt payment and statutory adjudication in Ontario.
Following the delivery of our Report and its release to the public, the Attorney General conducted a series of feedback meetings that confirmed the existence of a broad industry consensus regarding the recommendations. Subsequently, the Ontario Cabinet approved 98 of the 101 recommendations we had made, and the Attorney General continued our retainer to work with his Ministry to develop draft legislation implementing the approved recommendations.
On May 31, 2017, the Attorney General introduced Bill 142 (the Construction Lien Amendment Act, 2017) for First Reading. Following a further round of consultations, Second Reading on October 4th, and the hearings of the Standing Committee of the Legislative Assembly held in October and November, the Bill was unanimously passed by the Ontario Legislative Assembly on December 5th and the new Construction Act received Royal Assent on December 12, 2017. The modernization provisions take effect on July 1, 2018, while the prompt payment and adjudication provisions take effect on October 1, 2019.