On December 12, 2017, the Construction Lien Amendment Act, 2017 became law and Ontario's Construction Lien Act was re-named the Construction Act (the "Act"). While certain changes under the Act came into force on July 1, 2018, including the amendments to lien and holdback rules, amendments in respect of the prompt payment provisions, which define the concept of "proper invoice," come into effect October 1, 2019; and construction businesses will need to get organized.
The new Act mandates a prompt payment system, which is subject to the Act's grandfathering rules. Under the Act (and subject to the Act's grandfathering rules), a proper invoice must be given by a contractor to an owner on a monthly basis, unless the contract between these parties stipulates otherwise.
The amendments add the definition of a "proper invoice" to the legislation, which new concept is defined as a "written bill or other request for payment for services or materials in respect of an improvement under a contract."
The Act states that a proper invoice must contain certain information and meet the requirements that a contract specifies, including:
- The contractor's name and address;
- The date of the proper invoice and the period during which services or materials were supplied;
- Information identifying the authority under which services or materials were supplied;
- A description including quantity of the services or materials supplied;
- The amount payable for services or materials supplied and payment terms;
- The name, title, telephone number and mailing address of the person to whom payment is to be sent; and
- Any other information that may be prescribed by the contract and/or by Regulations.
Upon receipt of a proper invoice, the owner must pay the amount due within 28 days unless the owner delivers a notice of non-payment, which must set out the amount not being paid and all of the owner's reasons for not paying, and must be in the form specified under the Regulations. An owner must pay a contractor all amounts that are not otherwise identified in the non-payment notice.
Contractors must pay subcontractors within seven days of payment by an owner. If an owner gives a notice of non-payment, contractors must, within seven days, give to each affected subcontractor a copy of the owner's notice of non-payment and the contractor's notice of non-payment. The contractor's notice of non-payment must: be in the form prescribed by the Regulations, specify the amount not being paid and undertake to refer the matter to adjudication within 21 days.
Subcontractors must pay sub-subcontractors/suppliers within seven days of payment by the contractor. If the contractor gives a notice of non-payment, the subcontractor must give a notice of non-payment to the sub-subcontractors/suppliers.
Again, a proper invoice must be provided to an owner on a monthly basis, unless the contract provides otherwise. The new proper invoice concept is not applicable to subcontractor invoices to contractors or invoices from sub-subcontractors/suppliers to subcontractors.
If a payer fails to give notice of non-payment, the payer must pay in full. These changes make it incumbent on all parties to get organized in the early stages of a construction project, which may lead to faster resolution of disputes.
The overall intention of the prompt payment system and the new proper invoice concept is to keep projects and the flow of funds moving forward to ensure that contractors and subcontractors/suppliers are not forced to wait for payment. Proper invoicing and the strict timelines for payments to contractors and subcontractors/suppliers is expected to reduce payment delays that have been identified as a barrier to productivity in construction projects.
In order to prepare for prompt payment and the changes effective October 1, 2019, construction businesses across the industry must ensure, among other things, that their accounting systems and practices support the changes and allow for proper invoices and/or notices of non-payment to be provided as required.
(Remember to consider the transitional rules to determine whether the prompt payment amendments apply to your particular situation).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
