5/15/2019 Improving the Agenda speed of payment Speed of Payment - - PDF document

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5/15/2019 1

OGCA OGCA Symp ymposium - April 20 il 2019

Ray Bassett, Paul Raboud, Chris Moran, and James Little

Improving the speed of payment under the new Construction Act

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Agenda

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• Speed of Payment ‐ Introduction
• Prompt Payment
• Applicability of Prompt Payment
• The “Proper Invoice”
• Payment Terms
• Certification of Payments
• Timing of Payment and Notices of Non Payment
• Set‐off Rights
• Adjudication and Other Remedies
• Mechanisms to Aid Payment
• Practical Considerations

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Speed of Payment - Introduction

• “Ordinary Course” – for monthly progress draws and holdbacks in the
• rdinary course, payment periods have become elongated in relation from

the period of time from the submission of a payment application to the receipt of payment

• “Gridlock” – for disputes resulting in delay and damages, a cessation of

payment down the construction chain, and potentially protracted litigation

• Set‐off and “pay‐when‐paid” clauses can also contribute to cascading

payment delays

• Liens are useful security against non‐payment during insolvency, but lien

litigation is slow and cumbersome (e.g. disputes over performance)

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Speed of Payment - Introduction

• 1. It is not all just about speed of payment
• 2. Relationships are critical
• 3. Proper billing procedures are key
• 4. Who you partner with matters
• 5. People will still play games
• 6. Change is coming, but adjustments take time

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Speed of Payment - Introduction

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Payment Types

Prompt payment provisions & sometimes adjudication Adjudication PROGRESS DRAWS CHANGE ORDERS & CLAIMS

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Prompt Payment

• Prompt payment applies to both the public and private sector
• Seeks to ensure that all parties down the construction pyramid

are paid promptly

• Cannot contract out of prompt payment but parties are free to

contract in respect of payment terms (e.g. allow milestone payments, etc.)

• Prompt Payment provisions take effect on or after October 1,

2019, with the following exceptions:

• Will not apply to contracts entered into before October 1,

2019 (s. 87.3(4)(1))

• Will not apply to contracts entered into on or after October

1, 2019 for which a “procurement process” was commenced before October 1, 2019 (s. 87.3(4)(2))

• Will not apply to any subcontracts made under the

contracts described above (s. 87.3(4)(3))

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Payment Clock is Triggered by the “Proper Invoice”

• Trigger for payment is the delivery of a “proper invoice” by Contractor (defined in s. 6.1)
• An Owner must pay within 28 days of receipt or deliver a notice of non‐payment within

14 days of receipt if disputing all or any portion of the amount payable (ss. 6.4(1) and (2))

• Timing of delivery of a “proper invoice”
• Delivered monthly unless the contract provides otherwise (s. 6.3)
• Right to information about payment schedule (s. 39)
• Only the Contractor’s invoice is the “proper invoice” (s. 6.3)
• The “proper invoice” requirement does not apply to: (1) invoices from

Subcontractors to Contractor; or (2) invoices from Sub‐subcontractors to Subcontractors

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

The “Proper Invoice”

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Lien Act Provision

6.1 In this Part, “proper invoice” means a written bill or other request for payment for services or materials in respect of an improvement under a contract, if it contains the following information and, subject to subsection 6.2 (2), meets any other requirements that the contract specifies:

1. The contractor’s name and address. 2. The date of the proper invoice and the period during which the services

• r materials were supplied.

3. Information identifying the authority, whether in the contract or

• therwise, under which the services or materials were supplied.

4. A description, including quantity where appropriate, of the services or materials that were supplied. 5. The amount payable for the services or materials that were supplied, and the payment terms. 6. The name, title, telephone number and mailing address of the person to whom payment is to be sent. 7. Any other information that may be prescribed.

Take Away →

• Owner and GC can agree to contract terms that make

the criteria for a proper invoice more onerous (not less).

• NOTE: The Act speaks only to the invoice given by the

GC to the Owner. This proper invoice is the single event that triggers all of the timelines throughout the payment chain.

• The Act does not speak to the billing process between a

subcontractor and a GC. There are no statutory requirements around the timing, form, prior approval

• r other requirements of an invoice from a trade to a

GC.

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Rules related to the “Proper Invoice”

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6.1(2) Nothing in this Part prevents the revision of a proper invoice after it has been given, so long as the date of the proper invoice is not changed and the proper invoice continues to meet the requirements set out in subsection (1). 6.2 (1) Proper invoices shall be given to an owner on a monthly basis, unless the contract provides otherwise. (2) A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of a payment certifier or on the owner’s prior approval is of no force or effect. (3) For greater certainty, subsection (2) has no application to a provision in a contract that provides for the certification of a payment certifier or the owner’s approval after a proper invoice is given.

• Proper invoice can be revised after submission. The

date must not change and the other requirements of a “proper invoice” must be met

• Contracts with an owner can have milestone or other

payment periods that are not monthly.

• Prior approval by the owner/certifier cannot be a pre‐

condition – except on AFP/P3

• Owner/certifier approval after can be a condition of

payment (but the 28‐day clock starts with submission of the proper invoice, not with the approval).

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Certification of Payments

• The delivery of a proper invoice cannot be conditional on

certification

• Exception: AFPs (in the PA or Prime Contract)(s.

1.1(2.1))

• Requiring certification after a proper invoice is

delivered is not prohibited (s. 6.3(3))

• Certification processes now will be built into prompt

payment timelines

• i.e., to be completed within 14 days of the proper

invoice to allow for the delivery of a notice of non‐ payment if necessary

• Requires a re‐engineering of internal processes – engage

with payment certifier early and often

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The Rules For Payment (Owner)

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• Owners are required to pay within 28 days after receiving the proper invoice from the contractor

unless it issues a notice of non‐payment (s. 6.4(1))

• Owners may refuse to pay some or all of the amount payable under the proper invoice if they give

a notice of nonpayment to the contractor no later than 14 days following receipt of the proper invoice (notice must specify the amount that is not being paid and all reasons for the non‐ payment) (s. 6.4(2))

• The owner is required to pay all amounts payable under the proper invoice that are not the

subject of the notice of non‐payment (s. 6.4(3))

• Reasons for non‐payment can include set off (s. 6.7)

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

The Rules For Payment (GC)

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• If the GC receives full payment within 28 days, then within 7 days of being paid the GC must pay trades whose

work was included in the proper invoice (s. 6.5(1)).

• If the GC receives only partial payment, then within 7 days of being paid the GC must distribute that payment to

trades whose work was included in the proper invoice (s. 6.5(2)).

• If the amount not paid by the Owner relates to work by specific trade(s), then the GC must pay all other trades
• first. Any remaining funds must be paid to the implicated trades pro‐rata (i.e. as partial payment) (s. 6.5(3)).
• Within 35 days of the proper invoice, the GC must pay all trades any balance due (s. 6.5(4)).
• Prompt payment provisions do not effect the requirement to pay wages (s. 6.8)

NOTE: If the GC doesn’t give the proper notices of non‐payment below, then the GC will be required to pay even amounts that are disputed by the owner or the GC.

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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• The Contractor delivers a “proper invoice” to the Owner each month or

per contract (s. 6.3(1))

• The Owner delivers a notice of non‐payment disputing the entire amount

within 14 days of receipt of the proper invoice (s. 6.4(2)) or simply does not pay by day 28

• The Contractor can deliver a notice of non‐payment (due to the Owner’s

failure to pay) within 7 days of receipt of the Owner’s notice of non‐ payment (s. 6.5(5)) or if no notice was given, before the expiry of the 35 days from delivery of the proper invoice (s. 6.5(7))

• The notice must state:
• The amount not being paid
• A statement that some or all of the amount payable is not being paid

due to non‐payment by the owner

• That the Contractor undertakes to refer the matter to adjudication

within 21 days of delivering the notice of non‐payment (s. 6.5(5))

Rules of Non-Payment (GC) – Owner Does Not Pay

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Rules of Non-Payment (GC) – Dispute

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• A general contractor may refuse to pay all or a portion of an amount owing if the contractor gives

the subcontractor a notice of non‐payment (no later than 7 days after receiving a notice of non‐ payment from the owner or 35 days from the proper invoice) specifying the amount not being paid and all reasons for non‐payment (s. 6.5(6))

• Amounts that are not in dispute must be paid within the timelines specified under the Act
• Reasons for non‐payment can include setoff (s. 6.7)

Rule of Thumb ‐ Notices of non‐payment must be given the earlier of

• 7 days after GC gets a notice of non‐payment from the Owner, or
• 35 days after the proper invoice was submitted.

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Rules of Payment (Subcontractors)

• If the subcontractor receives full payment, then (subject to giving a notice of non‐payment)

within 7 days of being paid the subcontractor must pay its subcontractors or trades whose work was supplied under its subcontract and included in the proper invoice (s. 6.6(1))

• If the subcontractor receives partial payment, then within 7 days of being paid the

subcontractor must distribute that payment to trades whose work was included in the invoice to the GC (s. 6.6(2)).

• If the amount not paid by the GC relates to work by specific trade(s), then the subcontractor

must pay all other trades first. Any remaining funds must be paid to the implicated trades pro‐rata (i.e. as partial payment) (s. 6.6(3)).

• Subject to giving a notice of nonpayment, the subcontractor must pay each trade the

amount payable

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Rules of Non-Payment (Subcontractors)

• Subcontractors can also issue notices of non‐payment if either: a) they are not paid a portion or all of their

anticipated payment due to contractor non‐payment (s. 6.6(6)); or b) a dispute with a trade or trades in the tier below (s. 6.6(7))

• If the subcontractor is not paying due to non‐payment by the contractor, the notice of non‐payment notice must

state:

• The amount not being paid
• A statement that some or all of the amount payable is not being paid due to non‐payment by the GC
• Unless it is related to non‐payment by the Owner, that the Subcontractor undertakes to refer the matter to

adjudication within 21 days of delivering the notice of non‐payment (s. 6.6(6))

• A subcontractor may also refuse to pay all or a portion of an amount owing if the subcontractor gives the trade a

notice of non‐payment (no later than 7 days after receiving a notice of non‐payment from the owner or 42 days from the proper invoice) specifying the amount not being paid and all reasons for non‐payment (s. 6.6(7))

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Set-off Rights

• Reasons for non‐payment under Part I.1 may include (s.

6.7):

• 1. Set‐off by trustee under Section 12
• 2. Lien set‐off under Subsection 17(3)
• Set off limited to the same improvement, unless the

contractor or subcontractor becomes insolvent

• Other reasons for non‐payment:
• 1. Non‐payment from higher tier
• 2. Dispute regarding submission of “proper invoice”
• 3. Dispute whether amount claimed under “proper

invoice” has been earned

• 4. Contractual or equitable set‐off

This presentation does not constitute legal advice or a legal opinion on any matter discussed. 17

GC submits “proper invoice” monthly “0” Owner pays GC “amount payable” 28 35 GC pays Sub the “amount payable”

Payment Timeline ‐ Days Elapsed

60 Liens expire 61 GC must pay basic holdback to subcontractors. Optional annual and phased release. 14 Owner gives GC notice of non‐payment GC gives Sub notice of non‐ payment 21 42 GC gives Owner a notice of adjudication GC gives Sub notice of non‐ payment (i.e. day 35) GC gives notice

• f adjudication

(i.e. within 21 days) 56 Partial or non‐ payment by Owner 18 Adjudicator agrees to preside Docs to Adjudicator Adjudicator appointed by ANA

4 days 11 days 5 days 30 days

Determination, subject to extension(s)

7 days

39 days 95

10 days

39 days

10 days

91

Payment due Payment due

Plus Extensions

21 days

Publish Cert of

• Sub. Perf.

“0” 40 Notice of non‐ payment

7 days

Determination, subject to extension(s)

Suspension of work – payment of amt due, demob, remob & interest

7 21

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Adjudication and Other Remedies

• Adjudication: to be initiated within 21 days of delivery of notice of non‐

payment due to non‐payment of higher tier

• Adjudication is to be implemented as a targeted interim binding dispute

resolution mechanism integrated with the existing construction lien regime

• A party to a contract may refer to adjudication a dispute (in relation to

certain disputes) before the contract is complete

• Can adjudicate a wide variety of payment disputes (e.g. valuation of

services, change orders, notices of non‐payment, holdbacks, non‐payment

• f holdback)

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Adjudication and Other Remedies

• A single official Authorized Nominating Authority (ANA / Authority) will be

designated by the Ministry of the Attorney General following a detailed application process (in progress)

• Adjudicator must meet certain requirements and qualifications to be eligible

to hold a certificate of qualification to adjudicate

• In any case, the adjudication process is commenced by the delivery of a

Notice of Adjudication.

• A party to a contract or subcontract who wishes to refer a dispute to

adjudication shall give to the other party a written notice of adjudication

• Adjudicator fee is to be split equally, subject to conduct

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Adjudication and Other Remedies

• Interest: Late payments are subject to non‐waivable interest
• Suspension: the right of suspension arises 10 days following failure to

comply with an adjudicator’s decision and pay the following amounts when due (s. 13.19(5)):

• Amount required to be paid pursuant to the determination of an adjudicator
• Any interest accrued on that amount
• Any reasonable costs incurred by the Contractor or Subcontractor as a result of the

suspension of work

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Adjudication and Other Remedies

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This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Mechanisms to Aid Payment

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 Prompt Payment regime  Targeted adjudication – interim binding  Mandatory bonding  Trusts  Liens  Contractual rights – access to courts  Good business practice

This presentation does not constitute legal advice or a legal

• pinion on any matter discussed.

Mechanisms to Aid Payment

Mandatory Bonding

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50% Performance and 50% Payment bonds are mandatory only if:

• Procurement started after July 1, 2018

and

• It is a “public contract” as defined

and

• For an “improvement” as defined

and

• Original contract value is ≥ $500,000

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Mechanisms to Aid Payment

Mandatory Bonding

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1st tier subcontractors

“… due and payable under the terms of its subcontract …”

2nd tier sub‐subcontractors

… such amounts as the Contractor would have been obligated to pay to the Sub‐subcontractors under the [Act] …

Union or works trust fund:

“… wages and monetary supplementary benefits, as defined in the Act.”

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Amount due and payable Unresolved after normal negotiation and escalation Notice of Claim Surety’s “Position”

25 Business Days Longer only if agreed

Surety’s Acknowledgement & request for Information

3 BDs

Surety pays undisputed amounts

10 BDs 35 Business Days Longer only if agreed

Disputed Amounts resolved or (after Oct 2019) adjudicated

35 Business Days Longer only if agreed 45 Business Days Longer only if agreed

Sub‐subcontractors (2nd tier)

10 BDs after Info provided

• r

Surety’s “position” Surety pays undisputed amounts

Mandatory Bonding - Payment Bond Claim Timeline

This presentation does not constitute legal advice or a legal opinion on any matter discussed. Subcontractors (1st tier) Bond form includes:  Notice of Claim  Acknowledgment  Surety’s Position

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8 (1) All amounts, (a) owing to a contractor or subcontractor, whether or not due or payable; or (b) received by a contractor or subcontractor,

• n account of the contract or subcontract price of an

improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor. 8 (2) The contractor or subcontractor … shall not appropriate or convert any part of the fund to [its] own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services

• r materials to the improvement are paid all amounts

related to the improvement owed to them by the contractor or subcontractor.

• 1. The trust funds shall be deposited into a bank account in the trustee’s name. If there is more than one trustee of the

trust funds, the funds shall be deposited into a bank account in all of the trustees’ names.

• 2. The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and

paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information.

• 3. If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single

bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust.

Mechanisms to Aid Payment

Trusts

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Publication of the Certificate of Substantial Performance Date contract is completed, abandoned

• r terminated

Earlier of:

Registration of claim for lien (preserve) 60 calendar days Publication of the Certificate of Substantial Performance (prime) Last supply of services or materials Date (prime) contract is completed, abandoned

• r terminated

Date subcontract is certified complete

Prime Contract Earlier of: Subcontract & others

90 calendar days Start action to perfect lien Order setting action down for trial 2 years

Ti Timeli line fo for “lie liens” – p – procurements init itia iated af afte ter Jul July 1, 1, 2018 2018

45 calendar days 45 calendar days Contracts & subcontracts resulting from procurements initiated before July 1, 2018

Lien claims < $25,000 ‐Small Claims Court “form” of lien bond is prescribed in the Act

Mechanisms to Aid Payment - Liens

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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What will & will not change?

Practical Considerations

• What will not change:
• 1. Proper billing procedures are key
• Timely submission of invoices & supporting documentation
• Communication/reviewing invoices in advance
• 2. Relationships are critical:
• If you have to proceed to adjudication….you are not getting paid in a timely fashion
• Good business partners are not regularly proceeding to adjudication
• Operational involvement in collections
• 3. Lousy business partners will still be lousy business partners.
• 4. Liens will continue to be used.

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

What will & will not change?

Practical Considerations

• What will change:
• 1. More timely and cost effective dispute resolution:
• Balance of power between payer and payee has shifted more

toward the payee.

• Adjudication will provide a means to pursue disputes that were

too small to pursue in the past

• 2. More resources will be required:
• To meet payment timelines
• To address change orders and disputes;
• 3. Pay when paid is the law
• 4. Annual & Phased HB release a possibility?

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

What will & will not change?

Practical Considerations

• What we hope will change:
• 1. Culture of prompt payment

A culture of prompt payment is important.

• Germany – 24 days
• Portugal – 65 days

Will prompt payment legislation change what is acceptable?

• Government & larger companies are likely to be

more compliant

• Prompt payment remedies may not be effective

against persistent but not lengthy payment delays

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Practical Considerations

What the Industry Is Doing To Adapt

EDUCATION

• Successful transition depends on industry engagement and process

change.

• For example:
• municipal owners must re‐engineer internal approval processes to

meet new timelines

• Consultants and payment certifiers must re‐engineer process and

workflow to meet new timelines.

• Trades may benefit from “prompt payment” but still have
• bligations around documentation and timelines
• Internal processes need to support the requirements under the

Act

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

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Practical Considerations

What you need to do to adapt

• As the introduction of the prompt payment provisions approaches on October 1,

2019, it will be important that all contractors and subcontractors have readied themselves for the change

• Contract provisions will need to be reviewed carefully
• Improved organizational efficiency to process payments, including with respect to:
• Review of progress draws and/or payment certificates
• Processing of monthly payments
• Issuing the appropriate notices within the specified timelines
• Processing of payments arising out of adjudications
• Release of holdbacks
• GC (and trade) will need good working knowledge in the field of the payment

provisions and regional / H.O. support to meet the timelines.

• GC (and trade) will need resources to deal with the adjudication process.
• GC (and trade) – pay close attention to the new accounting requirements for trust

funds in Ontario.

This presentation does not constitute legal advice or a legal opinion on any matter discussed.

Questions?

This presentation does not constitute legal advice or a legal opinion on any matter discussed. 33

Ray Bassett - Rbasset2@travelers.com Paul Raboud - Paul.Raboud@bird.ca Chris Moran - Cmoran@ellisdon.com James Little – Jlittle@singleton.com