PPO Submission for Bill 142 Feedback
The following is an excerpt from Ron Johnson Director, Prompt Payment Ontario to The Honourable Yasir Naqvi, MPP Ministry of the Attorney General. Attached here is the full downloadable letter in PDF format.
Re: Bill 142 – Construction Lien Amendment Act, 2017
Prompt Payment Ontario wishes to begin by congratulating you and your staff for their efforts in crafting Bill 142, now before the Ontario Legislature. We also applaud the work by Bruce Reynolds and Sharon Vogel in creating the foundation for Bill 142 through the work they have done and continue to do for the Ministry. It was a significant challenge to incorporate the many recommendations contained in “Striking the Balance” in a manner which integrated them into the existing Construction Lien Act, and you have met the challenge admirably.
We are pleased to see the feedback process and understand that the objective of such process would be to offer constructive comments on the draft legislation, and as such, we offer the following for your consideration.
1. Generally – transition and implementation
It is obvious that the Bill contains a number of complexities to which the industry and government will need to acclimatize. Not least among these is the new system of adjudication.
We assume there will be a period prescribed between the enactment of the legislation and the coming into force of certain provisions. We offer no comment on this other than to urge that this period be kept as short as is practicable, both in the interests of maintaining a sense of urgency and in getting the legislation into force as quickly as possible.
2. Generally – electronic notices and payment
We believe it would be appropriate that the legislation generally encourage the use of electronic payment and the giving of electronic notices. This is in line with current practices which prevail in much of the marketplace and is consistent with the theme of the legislation, which promotes efficiency in payment and the resolution of payment issues.
The details governing the protocols are probably best covered by Regulations.
3. S. 6.4 (5) – correction of ambiguity
Section 6.4 (5) states:
Exception, notice of non-payment if owner does not pay
(5) Subsection (4) does not apply in respect of a subcontractor if, no later than the date specified in subsection (7), the contractor gives to the subcontractor, in the prescribed manner,
(a) a notice of non-payment, in the prescribed form,
(i) stating that some or all of the amount payable to the subcontractor is not being paid within the time specified in subsection (4) due to non-payment by the owner,
(ii) specifying the amount not being paid, and
(iii) providing an undertaking to refer the matter to adjudication under Part II.1 no later than 14 days after giving the notice to the subcontractor; and
(b) a copy of any notice of non-payment given by the owner under subsection 6.3 (2).
The highlighted subclause (iii) is unclear as to what must be done within 14 days: providing the undertaking or referring to adjudication. We understand the intent is to refer to adjudication.
A simple correction might be as follows:
(iii) providing an undertaking to refer the matter to adjudication under Part II.1, such referral to adjudication to take place no later than 14 days after giving the notice to the subcontractor; and
4. S. 6.5 (6) – suggested need for undertaking at the subcontractor level in parallel to the undertaking requirement at the general contractor level.
By s. 6.4 (5), a payer contractor is afforded a “pay when paid” privilege in circumstances in which payment is not received from the owner. That privilege is exercisable upon the giving of the required notice and an undertaking to refer the owner non-payment issue to adjudication.
We understand the purpose of s. 6.4 (5) is to promote the adjudication of payment issues at the owner–contractor level. The contractor not in receipt of payment from the owner is encouraged to have the matter adjudicated expeditiously, failing which the contractor remains obligated to pay its subcontractors within the times specified notwithstanding that it has not received corresponding funds from the owner.
This obligation to adjudicate payment issues is not found below the contractor level in the present draft. Specifically, s. 6.5 (6) provides:
Exception, notice of non-payment if contractor does not pay
(6) Subsection (4) does not apply in respect of a subcontractor if, no later than the date specified in subsection (8), the subcontractor required to pay under subsection (4) gives to the other subcontractor, in the prescribed manner,
 Prompt Payment Ontario
(a) a notice of non-payment, in the prescribed form,
(i) stating that some or all of the amount payable to the subcontractor is not being paid within the time specified in subsection (4) due to non-payment by the contractor, and
(ii) specifying the amount not being paid; and
(b) a copy of any notices of non-payment received by the subcontractor in relation to the proper invoice.
If the contractor does not pay a subcontractor, all the subcontractor needs to do to avoid its own obligation to pay its sub-subcontractors and suppliers is deliver the required notice under s. 6.5 (6). If the sub-subcontractor or supplier in receipt of this notice seeks to then adjudicate its entitlement to payment, we believe it likely that the non-paying subcontractor will simply point to the fact that it has not received funds from the contractor upstream, that it has delivered the required notice under s. 6.5 (6), and that its payment obligation to the sub-subcontractor or supplier is thereby suspended. We believe that the adjudicator will thereupon be driven to dismiss the claim of the sub-subcontractor or supplier, having been compelled to find that payment is not due by operation of s. 6.5 (6).
This would force a suspension of payment by the subcontractor to its sub-subcontractors and suppliers for an indeterminate period of time, in circumstances which the unpaid sub-subcontractor or supplier could not effectively control. If the payment issue which prevented the flow of funds from the owner to the contractor, or from the contractor to the subcontractor, is never adjudicated, the sub-subcontractors and suppliers would appear to be without an effective remedy, at least in the short term. We believe this outcome is paradoxical, and not in keeping with the intent of the legislation generally.
We would suggest that s. 6.5 (6) be amended to include a provision similar to that found in s. 6.4 (5) (iii), namely a requirement for an undertaking by the unpaid subcontractor to refer to adjudication within 14 days (failing which the obligation to make payment within the prescribed time remains, as it does for the contractor).
Besides correcting the problem outlined above, such an amendment would also achieve parity at both the contractor and subcontractor level, i.e. adjudications of payment issues would be encouraged at all levels. We are mindful that major subcontractors such as mechanical and electrical often engage multiple sub-subcontractors and suppliers, and in many respects are in the same position as the contractor as both recipients and payers of substantial funds upon a project. They should be similarly encouraged to take payment issues to adjudication, as quid pro quo for the privilege of deferring their own payment obligations to downstream sub-subcontractors and suppliers.
To read the complete document click here: Bill 142 Submission 07312017