Canadian Lawyer InHouse

JULY/AUGUST 2018 28 INHOUSE Lawyer Chris Moran, a director at Ellis- Don Capital, who leads teams through the bidding and project financing on public pri- vate partnerships and alternative financing and procurement, calls the new legislation "the most sweeping change to the construc- tion industry in the last 30 years." "It's going to be a massive overhaul for people," he says, adding that project owners will be the ones most impacted. As such, the legislation has far-reaching effects beyond the confines of the tradi - tional construction industry. It will impact all sorts of businesses that build new proj- ects or carry out capital repairs on their ex- isting operations. Lawyers say anyone who builds, ranging from public institutions — such as munici- palities, school boards and hospitals — to manufacturers, landlords and developers, not to mention construction trades, engi- neers and architects, will be subject to the new playing field. Moreover, the Ontario changes are hav- ing a national spillover effect. The federal government is looking at implementing its own construction legislation, and provinces such as Manitoba and British Columbia are eyeing changes to their lien acts. The Ontario reform has been years in the making and stems from the work undertaken by then Borden Ladner Gervais LLP lawyers Bruce Reynolds and Sharon Vogel, who were hired by Ontario in 2015 to review the Con - struction Lien Act, after a failed private mem- ber's bill sought to implement reforms (Reyn- olds and Vogel recently moved to Singleton Urquhart Reynolds Vogel LLP). Their 435-page report, "Striking the Bal- ance," which was delivered in April 2016, examined construction regimes all over the world and laid the groundwork for the new legislation. The Ontario changes are sweeping and will impact everything from how compa - nies manage cash flows to how they oversee their books and deal with building disputes. Richard Wong, chairman of the construc- tion and infrastructure practice group at Osler Hoskin & Harcourt LLP, says the province has three main goals: Modernize the legisla- tion, speed up payments and fast-track litiga- tion related to projects. "The reform is quite wide-ranging and extensive," he observes. MODERNIZING THE LEGISLATION For example, under the modernization re- forms, the law will now take into consid- eration new methods of building, such as public private partnerships known as P3s. Under the old law, P3s didn't fit neatly when it came to registering liens. Now, the legis - lation recognizes new forms of finance and procurement. "It's a big and growing part of the Ontario public sector," Wong says. Also, important deadlines related to pres- ervation of liens are changing. "The 45-day period everyone knows and loves is turning into 60 days," Wong explains. EllisDon's Karn warns that "people need to understand the implications of that. A lot of time payment holdback will trigger off of when the preservation periods expire." As well, the deadline for perfecting a lien will rise to 90 days from 45, and timelines for filing court actions are extended to 150 days from 90, which provides more time for par - ties to settle their disputes outside of court. However, some of the most significant changes lie ahead with prompt payment and adjudication. PROMPT PAYMENT This is the first time that legislation in Canada will mandate payment time frames, which is usually left to parties to sort out in their contracts. It will be a major change, lawyers say, and parties will not be able to contract out of the legislative timelines. Under the new regime, owners must pay contractors within 28 days of the receipt of a "proper invoice." The contractor must then pay its subcontractors within seven days of payment, and subcontractors must pay their subtrades within seven days of being paid. Moran notes that as you go deeper down the construction payment pyramid and into subtrades, "it is somebody's mortgage you are playing with." Part of the problem was that the length of time it was taking for contractors to get paid was growing. Between 2002 and 2013, the average collection period in construction rose to 71 from 57 days. Prompt payment will reel that in by em - ploying the notion of pay now and argue later, as opposed to the fight now, pay later mentality that exists. In the future, if an owner wants to dis - pute an invoice, they will have to act quick- ly, lawyers note. By the same token, if an owner advises the contractor that it is not paying within the mandatory deadlines, the contractor has to notify its subtrades that it will chase the money through adjudication. Failure to provide the proper notices un - der the new regime can be fatal to claims and can impact lien rights. "It is going to be hard for owners to get their minds around making that payment within 28 days and getting the infrastruc - ture into place," says Sandra Astolfo, a construction and infrastructure partner at WeirFoulds LLP. "I think the owners have to change their mindset and get a lot of sys- tems in place to make sure they are not off- side when prompt payment arrives in 2019." As well, the legislation also introduces new trust accounting principles to the con- struction business and attempts to bolster trusts to withstand scrutiny in a federal bankruptcy or a CCCA filing. Astolfo says that in-house counsel need to consult the new trust accounting obliga - tions to make sure their banking systems comply with the new obligations. Moreover, lawyers warn organizations such as municipalities and boards of educa- tion could find themselves hard-pressed to get the necessary approvals to pay in the tightened time frame. ADJUDICATION Adjudication opens up a whole new front in an effort to reduce large construction claims, which can be expensive to litigate. A regulatory authority is now being set up to certify construction adjudicators. Once in place, adjudicators will be given the It's going to be costly. In-house counsel have to consider how do they bake those costs into their bids. SANDRA ASTOLFO, WeirFoulds LLP

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