PAGE A2 – April 2011 – The GTA Construction Report COCA backs trade contractors’ call for prompt payment draft legislation


General contractors wary of drive to create new statutory payment rules, ban “pay when paid” clauses


MARK BUCKSHON – The GTA Construction Report Editor


A proposal for legislation enforcing prompt payment for sub and general con- tractors in the construction industry has been endorsed by the Council of Ontario Construction Associations (COCA) but the association representing general contractors in Ontario is unsure of why and how this will work. Clive Thurston, president of the Ontario General Contractors Association (OGCA) says he expects that owners and developers – once they get wind of the legislation – will make it clear to the provincial government that the draft legislation, spearheaded by a national trade contractors association, is a bad idea.


He says existing contract law and the Construction Lien Act provide remedies for trade contractors fearful about not receiving payment for their services in a timely man- ner. Informally, contractors know who is good and who is bad about payment in the industry, and subcontractors can either elect not to bid or to set higher bid prices if they think there will be payment problems. “That’s not to say this (slow payment) problem does not occur,” Thurston says. “But is it so great that someone needs to unilaterally promote a poorly written biased act to implement some kind of new law that doesn’t take into account the reality of the construction world?”


The draft legislation, titled “An Act Re- specting the Protection and Viability of Trade Contractors” is the initiative of the National Trade Contractors Coalition of Canada (NTCC), led largely by associations representing mechanical, electrical and ma- sonry contractors.


Similar legislation has been proposed for


British Columbia and possi- bly other provinces.


The legislation specifies specific time frames for payment and sets an 18 per cent per annum interest pay- ment for overdue accounts. Specifically, the pro-


posed Act says:


“All construction con- tracts shall provide that pay- ment of accounts due under a construction contract, ex- cept retainage, shall be made within 14 calendar days of the approval of the payment application” and: “A payment application shall be deemed approved 21 calendar days after receipt, un- less the party liable for payment provides a written statement describing the manner in which the construction work is undertaken, or related goods or services are supplied, did not comply with the provisions of the con- struction contract.” The draft Act further states that if money is withheld for non-compliance, the amount withheld can only relate to the portion of the contract in dispute.


The legislation also proposes that “Pay when paid” clauses cannot be used in con- struction contracts, a bone of contention for many subtrades as well as general contrac- tors.


The proposed legislation says, if con- tractors do not receive their payment under the provisions, they can suspend work. Pro- visions also allow for retainage, setting a limit of five per cent if the work is less than 50 per cent complete, and at 2.5 per cent if it is more than half finished.


COCA, which includes mixed construc- tion associations such as the Ottawa Con-


struction Association (OCA) and the Toronto Construction Associa- tion (TCA) has agreed to champion the new legislation.


Clive Thurston


“Because Ontario’s construction industry does not operate with well defined guidelines of timelines for payment for services rendered, many contractors are re- signed to ‘financing’ the costs of their projects until they are paid, or in a worst case scenario are


left without payment altogether,” a state- ment posted on COCA’s website says. “The message the construction industry is sending with this initiative is that the long-accepted practice of late payment for work completed will no longer be tolerated. The twenty-first century business model will create a new standard of business and economics where contractors are no longer left to bare the burden of the many upfront costs associated with the beginning of a new project. Many jurisdictions have already adopted prompt payment protocols as the terms and conditions for doing business, in- cluding the United Kingdom, European Union and many American states. COCA is doing to its part to make this a reality for Ontario.” Clive Thurston at the OGCA says he is surprised an organization representing a di- versity of mixed and specialty construction associations, which represent general con- tractors as well as sub-trades, have backed this legislation, which he believes is ill-con- ceived.


“The owner community will likely have


great difficulty with this legislation,” he said. “For example, many large owners, and public owners generally, will find compli- ance with the timing requirements impossi- ble.”


Thurston acknowledges that the draft legislation would provide the same protec- tion and rights for general as well as sub- contractors, so they would be able to use the law to enforce payment terms on their own accounts. However, he indicated the rules could effectively freeze the construction in- dustry as owners are caught in a compliance bind.


“This (legislation) doesn’t take into ac- count the complexity of the industry today,” Thurston says. “There are now very com- plex requirements for progress payments. If you do not fulfill the requirements, then payments can be delayed.”


The situation becomes more complex in that, to fulfill the information requirements for progress payments (to general contrac- tors) from owners, sub-trades often need to provide crucial information to the general contractors in a timely manner.


“The OGCA and general contractors have no problems with prompt payment as long (as the same rules) are applied equally throughout the industry,” he said. “But this is far more complex and requires an under- standing of contract law and how construc- tion is done to be able to address it.” Thurston says in the current environ- ment, subtrades who are not paid can seek remedies through the Construction Lien Act and certainly can withdraw their services. As well, they can elect not to bid to or pro- vide services to general contractors who they know are slow in paying their bills. “There are systems available to you if you are not getting paid,” he said.


Thurston believes the solution is a


“fairer, more balanced system.” “Clearly, we support the concept of prompt payment but this is not just a sub- trade issue; fair, equal and balanced con- tracts are vitally important; we cannot do this unilaterally,” he says. Thurston says he is concerned that neither his association nor groups representing owners were given the opportunity to review and comment on the draft legislation before COCA and the NTCCC made it public.


He said he expects that when political leaders hear from the people with the money – the owners – that they aren’t happy with the way this legislation is worded, it will fail.


However, through consultation, other options may be discovered. “At the end of the day, a statute stipulating a right to payment with a right to suspend work for non-payment, is in line with the customar- ily-used contract documents anyway,” Thurston says. “The presence of a statute would give the contracting community an- other stick to point to, outside the limits of their private contractual arrangements – and hence, independent of the ‘relationship’ considerations that always operate when en- forcing, or not enforcing, a contract. “But the thing (legislation) has to be at least operationally workable with the broader community of owners and general contractors,” Thurston says.


COCA, meanwhile, is preparing to lay the case for the proposed legislation before politicians, especially as the provincial elec- tion campaign nears. “COCA members interested in getting involved in advancing this legislation with the provincial government at Queen’s Park and with their local Members of Provincial Parliament are encouraged to contact David Zurawel at 416-968-7200, ext. 223 or via email at dzurawel@coca.on.ca for more de- tails,” the association says on its website. Richard McKeagan, president of the Mechanical Contractors Association of Canada, says the draft legislation “is what was submitted as a suggestion (to the gov- ernment.)


“There has been no response from the Ontario government to date,” he said.


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