Ontario’s new construction industry prompt payment rules kicked in on October 1, 2019. These rules will impact all construction contracts negotiated after that date.
How does it work?
When a business in the construction industry issues a proper invoice to the person/organization that commissioned the project (“the owner”), that business has either 28 days to pay the invoice to the contractor in full, or 14 days to issue a notice of non-payment to dispute the invoice, and launch the adjudication process.
Upon receiving payment, the contractor has 7 days to pay any sub-contractors in full.
If the payment is disputed, contractors are responsible to issue their own notice of non-payment to sub-contractors within 7 days or receiving a notice of non-payment from the owner.
What’s a proper invoice?
An invoice is considered a proper invoice so long as it contains:
- The contractor’s name and address
- The date the invoice was issued and period during which services or materials were supplied
- Information identifying the authority under which the services or materials were supplied
- A description, including quantity where appropriate, of services or materials supplied
- The amount payable for the services or materials supplied, and the terms of payment
- The name, title, phone number and mailing address of the person to whom payment is to be sent
What happens if an invoice is disputed?
If the owner disputes all or part of the invoice, the have 14 days from the day the received it to issue a notice of non-payment to the contractor.
A notice of non-payment must contain the amount that is not being paid (which can be up to 100 per cent of the invoiced amount) as well all of the reasons for non-payment.
If the 14 day window is missed, the owner must pay within the original 28 day deadline from the date the invoice was received.
A notice of non-payment has been issued. Now what?
After a notice of non-payment is issued, either party has the option to begin the adjudication process. The party that initiated the process has 5 days after an adjudicator has been appointed to supply them with relevant documentation. Unless otherwise agreed to in writing by both parties, the adjudicator then has 30 days to issue a decision. The decision is binding and if the adjudicator decides payment is required, the party that must pay has 10 days to do so. After 10 days, interest will kick in and the contractor or subcontractor may suspend their work with compensation for the costs of doing so.
What happens if payment is late?
Both contractors and sub-contractors have the right to charge mandatory interest on late payments. The interest rate will be set at the higher amount of the provincial pre-judgement rate (currently 2 per cent) or the rate set out in the contract/sub-contract.
If you are unsure whether your contract qualifies, you should consult with your lawyer.