Brian McCandie, B.Eng.
Effective October 1st, 2019, major changes to the Ontario Construction Act will affect the requirements for payment to contractors. We foresee that these changes will require condominium boards and property managers to adjust the way they typically process payment to contractors working on restoration projects.
Current Standards for Release of Payment
Currently, under the standard contract commonly used for condominium restoration projects, the following payment process is typically employed:
- The contractor submits an application for payment to the consultant for review; the consultant must review it, and within 10 calendar days issue the condominium a certificate for payment if the application is acceptable.
- The condominium is responsible for payment on or before 20 calendar days after either the consultant’s receipt of the contractor’s application for payment, or the end of the billing period, whichever is later.
In other words, the contractor typically receives payment 30 calendar days after submitting his application.
New Standards for Release of Payment, Effective October 1st, 2019
The amendments to the Construction Act require a different payment process:
- The contractor submits an application for payment to the consultant for review.
- If the condominium wishes to dispute the application for payment, the consultant has 14 calendar days to file a notice of non-payment to the contractor, stating whether the full invoice or a portion thereof will not be paid, and providing reasons why.
- If the application for payment is not disputed, the consultant issues a certificate for payment to the condominium, and the condominium is responsible for payment no later than 28 calendar days after the contractor submits the application for payment.
If payment is not made, under the amended Construction Act the contractor now has the right to refer the matter to an adjudicator licensed to conduct a hearing and resolve the dispute by making a judgement which has the weight of a court order. Although this adjudication process will be available for a variety of disagreements, it’s easy to see it being used to enforce payment terms.
This means that, in the near future, if a condominium wishes to dispute a contractor’s application for payment, the consultant must take action on its behalf within 14 calendar days. Otherwise, the condominium is required to release full payment to the contractor no later than 28 calendar days after the date of submission of his application for payment. If payment is not made in time, the contractor can initiate the specialized adjudication process.
The Effect of these Changes on Condominiums
After working with condominiums on a variety of restoration and maintenance projects, our experience is that Boards of Directors typically meet once or twice a month to discuss all building issues. Property managers also typically release cheques for payment at pre-set intervals on a monthly basis.
This protocol suits much regular condominium administration, but in the past often led to contractors remaining unpaid for 40 or 50 days if meeting and/or payment schedules did not align with the timing of billing certifications. If an invoice was disputed, payment could be delayed 60 days or longer.
Under the current standards, while this was a breach of contract, it was quite rare that the contractor would take intervening action. The contractor’s main recourse under this system was to stop work on site until payment is released, which was not conducive to project completion, and detrimental to all parties.
Under the new Act, there will be an established process, specifically intended for resolving these types of disputes without halting the project. An adjudicator qualified by an Authorized Nominating Authority under the Construction Act will review the case. In most cases, the adjudicator will issue a court order for the owner to release payment unless adequate reason for non-payment without filing a notice of non-payment can be presented.
How Your Condominium’s Payment Processes Must Change
When undertaking renovation projects, it is now critical that condominium boards and property managers take steps to ensure that their payment processes comply with the new Standards for Release of Payment. The adjudication process is likely to prove time-consuming and costly for condominiums facing complaints of non-payment.
While October 1st, 2019 may seem a long way off, it takes time and commitment to change a process, especially well-established one.
The time to start implementing changes to your payment process is now, as you prepare for any 2019 summer restoration projects.
When adjusting your payment process to accommodate the new act, particular attention should be paid to the following:
- Under the new legislation, the condominium still has a right to dispute either the full invoice or a portion thereof, but this must be done within 14 days of receiving the application for payment. Any inquiries from your consultant about the application for payment should therefore be answered promptly. Relying more on email communication and less on monthly sit-down meetings will be crucial in achieving this.
- Unless a notice of non-payment has been filed by the 14-day deadline, the condominium is required to release full payment within 28 days, or otherwise face adjudication. Meetings to approve both payment and the processing of cheques for payment should therefore be held more regularly when a building is undergoing restoration.
The standard practices of both property managers and boards require adjustment in order to comply with the new legislation. Failure to adjust to the amendments will open condominiums to a codified legal process that will probably error in favour of contractors receiving payment in full as soon as possible.