LEGAL
provisions, failing which, any provisions
contrary to the provisions will
be void and the payment terms as set
out in the Ontario Act will be read
into the contract.
The federal government and
other common law provinces have
either introduced prompt payment
legislation or are in the process of
introducing prompt payment legislation.
Currently, the Ontario Act
is the only one in effect. However,
the federal government has enacted
federal prompt payment legislation
(not yet in effect) and other provinces
are following suit.
Prompt payment was introduced
as Part I.1 of the Ontario Act and it,
amongst other components, provides
timelines for payments, a process for
providing notice where payments
will not be made in accordance
with those timelines or at all, and in
some circumstances, directs parties
to resolve issues surrounding non-
payment to interim adjudication.
The trigger for payment is the
submission of a “proper invoice”
from a contractor to an owner.
Upon receipt of the proper invoice,
the owner shall pay the contractor
no later than 28 days after receipt.
Upon receipt of the funds, the contractor
shall pay its subcontractor(s)
within seven days. Further, upon
receipt of the funds from the contractor,
a subcontractor shall pay its
own subcontractor(s) within seven
days upon receipt. This timeline
continues all the way down the construction
pyramid.
Further, in the event of a dispute,
the non-paying party must
provide a “Notice of Non-Payment”
in a prescribed form and within the
prescribed time. The owner must
provide a Notice of Non-Payment
to the contractor within 14 days of
receipt of the proper invoice. If the
contractor intends not to pay subcontractors
as a result of the Notice
of Non-Payment received from the
owner, the contractor must provide
a Notice of Non-Payment to subcontractors
within seven days or
otherwise 35 days after receipt of the
proper invoice. If the subcontractor
intends not to pay its subcontractors
as a result of the Notice of
Non-Payment received from the
contractor, the subcontractor must
provide the Notice of Non-
Payment to the sub-subcontractor
within seven days of receipt of the
Notice of Non-Payment. Any party
relying on a Notice of Non-Payment
from its payer as a basis for not
paying their trade/supplier must
within 21 days, refer the payment
dispute to interim adjudication.
It is important to understand
that a proper invoice only applies
to a contract and not a subcontract.
A subcontractor does not issue a
proper invoice. It is only the contractor’s
invoice to the owner that
is a proper invoice and is the trigger
of payment. As such, the timing
of the subcontractor’s payment is
based on when the contractor carried
the subcontractor’s invoice in
the proper invoice.
In light of the transition provisions,
it is too soon to see how
prompt payment will impact the
flow of funds on a construction project
and whether parties to a contract
will refer a dispute to interim adjudication.
To date, there have been
no reported decisions on the prompt
payment provisions in the Ontario
Act and a variety of questions
remains. For instance, the Ontario
Act is silent on the consequences
for failure to comply with the timelines
or at all with the provisions.
Further considering that a party can
provide a Notice of Non-Payment in
situations where that party was not
paid by its payer begs questioning
whether the legislature effectively
implied a “pay-when-paid” clause
into construction contracts. Given
the ability of a party to provide
a Notice of Non-Payment where
it was not paid, the Ontario Act
appears to provide a valid defence
to non-payment, even where there
is no “pay-when-paid” clause in the
relevant contract or subcontract, as
long as the non-paying party complies
with the prompt payment
provisions of the Ontario Act.
Federal legislation and other
provincial legislation
The federal government followed
suit with their own prompt payment
legislation, known as the Federal
Prompt Payment for Construction
Work Act (the Federal Act).3 The
Federal Act contains similarities to
the Ontario Act, though there are
differences in the trigger points for
the payment timeframes.
The Federal Act applies to all federally
owned projects throughout
Canada, though the federal government
may exempt provinces
from application of the Federal Act,
provided that the provincial governments
have a similar prompt
payment legislation of their own.
Whether caused by the Federal Act or
not, each common law province has
enacted their own prompt payment
legislation, though it bears restating
that none of these are currently in
force, expect Ontario’s.
Prompt payment came
into effect in Ontario on
Oct. 1, 2019. However, it did
not automatically apply
to all construction
contracts/subcontracts.
52 Issue 4 2021 www.pilingcanada.ca
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