Obligations and opportunities presented by Ontario’s new Construction Act
The health of the construction industry depends upon timely cash flow through the supply chain. Yet virtually every business in the construction industry must deal with the unproductive, often costly, problem of payment disputes.
As projects become increasingly complex and time-consuming, resolving disputes is taking longer and longer – often months, even years. Disputes increase financial risk and costs for all of the individuals and businesses involved – and sometimes compromise the survival of businesses.
The new Construction Act that began phasing in on July 1st of this year with the second phase coming October 1st, 2019, is intended to strengthen prompt payment, construction lien and holdback rules.
For owners, developers and contractors, preparing now for both current and upcoming changes is important to ensure that obligations under the new legislation are met, and that opportunities to streamline payments are realized to avoid lengthy disputes.
Recommendations to manage the new Construction Act requirements
The following provides suggestions on ways to leverage the provisions in the Act to reduce the frequency of disputes and the time and expense required to resolve them.
Establish a system of processes and controls:
It is important for owners, developers and contractors to develop their own system of processes and controls to ensure prompt payment and quick resolution of disputes before they distract from the core business and negatively impact the value of projects. Clarity as to obligations to pay must be managed tightly, and with an equal obligation in terms of timing and completeness of requests for payment in the contracts for all parties to the supply chain.
The supply chain plays a vital part in the successful delivery of all construction projects. Since strong relationship management is essential for long-term success in the construction industry, an integral part of a supply chain strategy should be building a foundation for the future. This requires information sharing, regular communication and building goodwill and trust with key members.
Integrate conflict-avoidance strategies:
Integrating conflict-avoidance strategies into each stage of a construction project can prevent or minimize the gravity of many disputes. Here are some examples:
- Vet potential third-party relationships
- Conduct pre-contract due diligence of potential issues and risks
- Conduct thorough risk analysis and establish practical allocation of risks in contracts to enhance project performance
- Develop clear, concise, and transparent contracts that address both parties’ expectations
- Maintain timely, accurate and complete project records
- Follow all notice and documentation requirements of the contract
- Establish reliable processes and robust contract terms for timely invoicing and payments
- Discuss issues of concern as soon as they arise
By occupying management time and tying up resources, payment disputes can hamper effective business decision-making and increase risk for construction projects. While the new Construction Act provides helpful mechanisms for dispute resolution, generally, the most productive solution is a willingness to talk and negotiate. Discussion and negotiation are not only cost-effective; they also provide both parties with control over the outcome.
The fact is, payment disputes will continue to occur, regardless of legislation, and while the intention of Adjudication is to provide swift resolution to disputes, and speed up the payment of monies, the Adjudication process will require substantial time and resources that would be better spent elsewhere.
Final word of advice: when unsure of the most appropriate solution to a payment issue or dispute, making a phone call to obtain expert advice can de-escalate the issue or dispute, creating valuable time to get on with the business of completing a rewarding construction project.