By Roxie Graystone
Special to Ottawa Construction News
As of October 2019, payment practices in the Ontario construction industry will drastically change and many are not yet aware of how this will impact their business.
The Construction Act in Ontario is being amended with a new ‘prompt payment’ regime. One of the main changes that is coming involves administration and forms.
For prompt payment in Ontario, there are five forms everyone in the construction industry needs to know about:
Form 1.1 – owner to contractor when owner disputes contractor invoice
Form 1.2 – contractor to subcontractor when owner fails to pay or disputes
Form 1.3 – contractor to subcontractor when contractor disputes
Form 1.4 – subcontractor to subcontractor when contractor fails to pay
Form 1.5 – subcontractor to subcontractor when subcontractor disputes
The prompt payment process starts with the contractor ‘giving’ a proper invoice to the owner, including at least the following information: the contractor’s name, the period of supply, the authority for supply, a description of the services or materials supplied.
Section 6.3 of the Act describes how invoices should be given and unless the contract specifies it, invoices must always be sent monthly. Section 87 of the Act allows that documents can be provided in the following fashion:
- by personal service
- service by mail (deemed to occur five days after the date of mailing)
- service by email
- service at a person’s residence or service at a last known address.
How will the new prompt payment regime work for all involved?
Payment: Owner to Contractor
Once the invoice is properly provided, the owner has fourteen days to dispute all or part of the invoice and twenty-eight days to pay the invoice. An owner’s dispute over an invoice is triggered with the filing of Form 1.1., which requires the owner to identify the amount in dispute and the reasons for non-payment. If Form 1.1 is not delivered after 14 days, then payment must be issued by 28 days since the invoice was provided.
Payment: Contractor to Subcontractor
Once full payment is received by the contractor from the owner, they have 7 days only to make payment to the subcontractor(s). If there is a dispute where the contractor disputes the amount paid to them by the owner, the contractor must provide the subcontractors with a Form 1.3 (within 35 days after the invoice was given to the owner), which identifies the amount in dispute and reasons for non-payment.
If the owner makes no payment or only partial payment, the contractor has until day 35 to pay the subcontractor or, alternatively, has seven days from the date of receipt of the notice of non-payment from the owner to deliver a Form 1.2. Important here is that within 21 days of delivering a Form 1.2, the contractor must refer the matter to adjudication.
Payment: Subcontractor to Subcontractor
Subcontractors that receive full payment from a contractor can go ahead and pay their subcontractors or dispute the payment received. Payment must be made 42 days after the invoice is received by the owner, otherwise, the paid subcontractor must give a Form 1.5 to dispute. In this scenario, the Form 1.5 must be given to the unpaid subcontractor by day 42.
As with the contractor, where a subcontractor receives no payment, they still must pay their subcontractor(s). But, where the subcontractor receives a Form 1.3, the subcontractor has seven days from receiving that notice to deliver a Form 1.4. Further, the subcontractor must refer the matter to adjudication within twenty-one days of delivering a Form 1.4.
So, what are the practical impacts to keep in mind under this new prompt payment regime in Ontario?
1. Invoices will take more time to complete and must meet statutory requirements, including identifying contract authority and describing services and/or materials invoiced
2. Money must move quick as there are 7 days allotted to pay subcontractors once payment is received by the contractor
3. Firms must be ready to quickly pick an adjudicator and file materials if there is a dispute
4. Need to keep records for management of suppliers and subcontractors showing reasons for non-payment.
With these new changes coming into effect as of October 2019, those in the construction industry in Ontario will need to become very proactive in their payments and their dealings with supply and subcontractor management in order to follow the new rules.