The New Construction Act
2018 was an important year for the construction industry as the old Construction Lien Act was substantially amended and renamed the Construction Act. As of July 1, 2018, most of the amendments in the Construction Act are now in force and the amendments will apply to any project where:
- The contract or subcontract for the improvement was entered into after July 1, 2018;
- The procurement process for the improvement was commenced by the owner after July 1, 2018; or
- The premises are subject to a leasehold interest and the lease was first entered into after July 1, 2018.
Projects that do not meet the above-mentioned criteria shall still be administered under the old Construction Lien Act.
The following charts outline some of the key amendments that came into force on July 1, 2018 and also highlight the amendments that will come into force on October 1, 2019.
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Construction Lien Act
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Construction Act |
| New Rules regarding Alternative Financing and Procurement Arrangements (AFP)
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| The Act did not contain provisions relating to AFPs. | · The Act applies to a project agreement between the Crown, a municipality or a broader public sector entity with a special purpose entity, which is known as a “Project Co.”. The Project Co. is deemed to be the owner of the premises.
· The Act sets out the rules regarding: Section 31 (Expiry of liens); Section 32 (Certification or declaration of substantial performance); Section 33 (Certificate for subcontract); and Section 39 (Right to information).
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| Updated Thresholds for Substantial Performance
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| The old Act provided that a contract is substantially performed when the following formula was met: when there is a known defect, correction, at a cost of not more than 3 percent of the first $500,000 of the contract price, 2 percent of the next $500,000 of the contract price, and 1 percent of the balance of the contract price.
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The threshold for substantial performance under subclauses 2(1)(b)(ii) and (iii) has been amended to increase the threshold from $500,000 to $1,000,000 in each stage of the formula. |
| Duties for Trustees of Trust Funds
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| The Act did not contain specific requirements for trust account bookkeeping. | Section 8.1 of the Act imposes duties on contractors and subcontractors who are trustees of trust funds. These requirements include:
o Depositing trust funds into a bank account in the trustees name; o Maintaining written records of trust funds, including the amounts received into and paid out of the funds and any transfers made; and o If the person is a trustee of more than one trust under Section 8, the trust funds may be deposited together in a single bank account. NEW CHART |
| New Rules for Holdback | |
| A. Permissible Forms of Holdback | |
| The Act did not specify the form in which the holdback should be maintained. | Section 22(4) of the Act has been amended to allow holdbacks be retained in retained in funds (cash), a letter of credit or holdback repayment bond.
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| B. Payment of Holdback
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| Payment of the holdback was permissive once liens that may be claimed against the holdback have expired or been satisfied, discharged or provided for under Section 44 of the Act.
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Sections 26 and 27 of the Act have been amended to require the payment of the holdback once all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under the Act.
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| C. Annual and Phased Release of Holdback
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| The Act did not provide for the holdback to be released on an annual or phased basis | Sections 26.1 and 26.2 of the Act provide that holdback may be released on an annual or phased basis if certain conditions are met, including the following:
o The contract provides for such payment; o The contract price is $10 million or higher; and o There are no preserved or perfected liens or all liens have been satisfied, discharged or otherwise provided for under the Act.
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| D. Non-payment of Holdback
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| The Act did not provide for a notice of non-payment of holdback. | · Section 27.1 of the Act, states that an owner may refuse to pay some or all of the holdback if the owner does the following:
o Publishes a Notice of Non-Payment of Holdback (Form 6)* no later than 40 days after publication of certification or declaration of substantial performance; and o Notifies the contractor of the publication of the notice in writing (electronic or paper format) within three days of publication.
· Section 27.2 and 27.3 of the Act, states that a contractor or subcontractor may refused to pay some or all of the holdback if: o The contractor or subcontractor refers the matter to adjudication under Part II.1; o The contractor or subcontractor notifies interested parties the amount not being paid and that the matter has been referred to adjudication. NEW CHART |
| Construction Liens
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| A. Set-Off
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| In determining the amount of a lien, set-off was applied with respect to outstanding debts, claims or damages whether or not related to the improvement.
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Section 17 of the Act, which provides for set-off in relation to the lien, has been amended to limit set-off in relation to other contracts except in situations where the contractor or subcontractor has become insolvent.
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| B. Preservation of Liens
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| Liens were to be preserved within 45 days of the publication of substantial performance of the contract or the date the contract is completed or abandoned. Where there is no certification or declaration of substantial performance or the services or materials are supplied after substantial performance, the lien was to be preserved within 45 days of the date the contract is completed or abandoned
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· Section 31 of the Act has been amended to increase the deadline to preserve a lien from 45 days to 60 days.
· Termination of a contract has been added as a trigger in determining the timeline for preserving a lien. If a contract is terminated, a Notice of Termination under Subsection 31(6) (Form 8) must be published by the owner, contractor or a person whose lien is subject to expiry.
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| C. Workers’ Trust Fund Lien
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| The Act did not contain specific reference to the lien of the trustee of a workers’ trust fund or to termination of a contract. | · The lien of a trustee of a workers’ trust fund for services or materials supplied on or before substantial performance of the contract expires 60 days after the earlier of,
o The publication of substantial performance, o The date on which the final workers last supplies services or materials to the project, o The date the contract is completed, abandoned or terminated, and o The date a subcontract is certified to be complete (where applicable).
· The lien of a trustee of a worker’s trust fund relating to services or materials supplied where there is no certification or declaration of substantial performance, or after substantial performance, expire 60 days after the earlier of, o The date on which the final worker who is a beneficiary of the workers’ trust fund last supplied services or materials, o The date the contract is completed, abandoned or terminated, and o The date a subcontract is certified to be complete (where applicable).
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| D. Perfection of Liens
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| Liens Must Be Perfected Within 45 Days Of The Last Day The Lien Could Have Been Preserved.
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Section 36 of the Act has been amended to increase the timeline to perfect a lien from 45 days to 90 days.
NEW CHART |
| Right to Information
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| · The Act provided that a state of accounts may be requested but did not describe what it must contain.
· The Act did not contain provisions relating to information that may be requested from landlords or about payments based on the completion of phases or milestones. |
· Section 39 of the Act has been amended to clarify the right to require information from an owner or contractor or between a subcontractor and contractor with respect to the state of accounts between the parties with specific information and requires the party to state whether the contract provides for payment based on the completion of specified phases or milestones.
· A landlord whose interest in the premises is subject to a lien must provide information relating to the lease and the state of accounts.
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| Vacating Liens without Notice
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| To vacate a lien without notice, Section 44(1) of the Act allowed a person bringing a motion to pay into court, or post security, in an amount equal to the full amount claimed in the claim for lien and the lesser of $50,000 or 25% of the amount claimed, as security for costs.
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The amount of security for costs has been increased to the lesser of $250,000 or 25% of the amount claimed in the claim for lien. |
| New Requirement for Surety Bonds
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| The Act did not contain a requirement for surety bonds on public projects. | · Part XI.1 has been added to the Act to establish requirements for a contractor who enters into a contract with an owner that is the Crown, a municipality or a broader public sector organization (a “public contract”) to provide the owner with a labour and material payment bond and performance bond, if the contract price is $500,000 or higher.
· The bond forms are prescribed as Form 31 (Labour and Material Payment Bond under Section 85.1 of the Act) and Form 32 (Performance Bond under Section 85.1 of the Act) in the new Forms regulation under the Act. They include a detailed claims process.
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| Surety Bonds and AFPs
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| The Act did not contain a requirement for surety bonds on AFPs | The surety bonding requirements in Part XI.1 of the Act apply to the agreement between the Project Co. and the contractor requires labour and material bonds and performance bonds with a minimum coverage limit of 50% of the contract price if the contract price is $100 million or less or $50 million if the contract price is more than $100 million.
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| Publication of Documents
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| References to publication of documents in a “construction trade newspaper” were set out in the Act. | The definition of “construction trade newspaper” has been repealed in the Act and all sections that mention the same in the Act have been changed to “in the manner set out in the regulation”.
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| Definition expanded for “Improvement”
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| The Act did not refer to “capital repair” | Section 1 of the Act has been amended to add the term “capital repair” to the definition of “improvement”. Capital repairs are those that extend the normal economic life or improve the value or productivity of the land or building.
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| Definition expanded for “Price”
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| The Act did not refer to “direct costs”
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The term “direct costs” has been added to the definition of “price”. It means reasonable costs of performing the contract or subcontract if a project is delayed but does not include indirect damages. This means that a lien can include direct costs not caused by the contractor.
NEW CHART |
| Upcoming Amendments (effective as of October 1, 2019)
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| A. Prompt Payment Regime
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| The Act did not provide for prompt payment provisions | · The proposed prompt payment provisions will apply to payments made under contracts entered into on or after the date the amendments come into force on October 1, 2019.
· Owners will have 28 days to pay a contractor after delivery of invoice, and contractors will have 7 days to pay a sub-contractor (after receiving payment from the owner).
· Owners will be permitted to dispute all or parts of an invoice; however, they will be required to deliver a notice of non-payment within 14 days of receiving the proper invoice from the contractor. Similarly, contractors will also have to deliver a notice of non-payment to subcontractors if they do not intend to pay the full amount of the invoice.
· Contractors and subcontractors will receive mandatory interest on late payments.
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| B. Speedy Dispute Resolution
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| The Act did not provide for a speedy and low cost interim adjudication system | · Parties to a construction contract will be entitled to refer disputes arising out of a proper invoice under a contract to adjudication.
· The party with the issue will deliver a notice of adjudication to the party with whom it has a contract. The receiving party will have two days to determine if it agrees with the proposed adjudicator. Five days later, there will be a referral notice, a notice of adjudication and back-up documents from the claimant to be provided to the adjudicator. Ideally, within approximately six weeks, the adjudicator will deliver a written decision that will be binding on the parties.
· Non-compliance of the adjudicator’s decision will entitle the party eligible for an award to suspend further work under the contract.
· The adjudicator’s decision can be challenged on the grounds of bias.
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For more information on the amendments to the Construction Act, click here and here.
OSPE Affinity partner, Corestone Law contributed to this blog post. Click here to read more posts from our partners.
