February 13, 2018
Amendments to Ontario’s Construction Lien Act
In May 2017, the Ontario government introduced changes to the Ontario Construction Lien Act, which among many things, introduced prompt payment provisions, an adjudication process, and the introduction of mandatory performance bonds. While most of the changes were welcome on the whole by industry, those three particular subjects, as written in the legislation, presented unintended complications for public-private partnerships.
In short, the major problems were:
- Performance Bonds of 50% could significantly add to the price of P3s with little benefit and could also be difficult to raise for projects of major scale
- Adjudication should be concurrent and consolidated if possible to ensure there are no stranded assets
- Prompt payment timelines could be impossible to meet if government was not included in the proces
In early August, CCPPP convened a roundtable of experts to identify and articulate the problems with the Bill and propose constructive options for amendments. CCPPP followed up in writing to the Minister of the Attorney General regarding the industry’s stated concerns and recommended solutions.
CCPPP then appeared before committee in October to support the amendments and to protect the P3 industry. The government responded favourably with a number of amendments, which provided flexibility on performance bonding, made adjudication more flexible and brought the government into prompt payment for P3s.
Attorney General, Yasir Naqvi acknowledged the Council’s considered suggestions and made a point of highlighting the importance of ensuring the Act in no way impede the progress and success of public-private partnerships, referred to as Alternative Financing Procurement (AFP), in Ontario.
In his address to the legislature, the AG said:
“(AFP) is used to finance and procure many large, complex public infrastructure projects. Under AFP, public sector owners establish the scope and purpose of a project, while construction work is financed and carried out by the private sector. But when the Construction Lien Act was first enacted, construction projects were not carried out on this kind of scale. That is why it was so important that we update the legislation so it reflects how business is done today.
As we heard during committee, AFP projects are unique and incredibly complex. Because of this, they require a nuanced approach, particularly when it comes to prompt payment and adjudication. That is why, Speaker, the committee amended the bill to clarify the rights and responsibilities of AFP project owners. Specifically, the amendment clarifies that the prompt-payment timelines and the adjudication process would apply to public sector owners on AFP projects, including the crown, municipalities and broader public sector organizations. It also modifies the bill to reflect the nature of AFP projects and ensures that the new regime will work in practice.
… Speaker, as you know, the bill would also require surety bonds to be posted on public projects above a certain dollar amount. These bonds are currently used for both public and private projects, but there is no legislation that mandates contractors to post them. By posting mandatory surety bonds, subcontractors and suppliers will be protected and paid in case of a project’s insolvency.
Previously, the bill provided that the coverage limit for labour and material payment bonds must be at least 50% of the contract price. The bill has been amended to allow for a different coverage limit for surety bonds to be prescribed by regulation. This means that the regulation could prescribe a coverage limit that is lower or higher than 50% of the contract price—a change that would provide subcontractors and suppliers with the flexibility to adjust the coverage limit for labour and material payment bonds.”
Bill 142, Construction Lien Amendment Act, 2017, received Royal Assent on December 12, 2017.
The ministry has, in collaboration with Bruce Reynolds, Sharon Vogel and the expert Advisory Group, developed the following four draft regulations to support the amendments to the Act.
- Procedures for Actions under Part VIII;
- General (e.g. monetary thresholds for surety bonding and holdback and notice requirements); and
- Adjudications under Part II.1 of the Act.
Consultation drafts of the regulations have been posted on Ontario’s Regulatory Registry and are available online at Construction Lien Act: Proposed Regulations. The regulations will be posted for a period of 30 days, during which time you will have an opportunity to provide feedback. You may send your comments by email to: [email protected]. The ministry will review your comments during the posting period and will make revisions to the proposed regulations, as necessary, on an ongoing basis.
You are encouraged to provide your input at your earliest convenience.
Please do not hesitate to reach out to us if you find anything in the draft regulations problematic as we are happy to convene a discussion should it be warranted.
Ontario’s legislation and regulations will be a benchmark for other jurisdictions across the country. Saskatchewan and Manitoba are currently considering similar legislation and the federal government is reviewing its own prompt payment initiative.