On March 20, 2020, the Ontario Lieutenant Governor in Canada made an order under s.7.1 of the Emergency Management and Civil Protection Act suspending limitation periods in any legislation, regulation, order or by-law. This move is retroactive to March 16, 2020 and will continue for the “duration of the emergency.”

The order was issued in an effort to protect the public from the expiry of legal rights in circumstances where the COVID-19 pandemic prevents parties from taking the steps necessary to preserve those rights. However, the order also impacts the operation of construction contractors who are finding that their holdback funds are being withheld by project owners, including government entities, who are now concerned about liens being filed on projects, even after the statutory lien period has ended.

According to the Surety Association of Canada (SAC), the impact of not receiving holdback funds can be devastating to contractors, many of whom are small businesses. Holdback funds represent the vast majority, if not the entirety, of many companies’ available operating capital. The SAC says that losing access to these funds will “result in many companies becoming illiquid very quickly. With fewer projects expected to come onto the market and with current broader economy stresses, this pool of readily available cash is critical to the ongoing viability of the affected construction businesses”.

Steve Ness, president of the SAC, expressed concern about the impact that this suspension could have on construction firms. “We urge the government of Ontario to amend the order and to provide an exemption for the Construction Act of Ontario,” he said.

When asked about the possibility of having contractors provide a Holdback Repayment Bond that would protect project owners against liens and allow them to release the holdback money as it became due, Ness confirmed that these bonds could be used to assist contractors on projects where a performance and payment bond was in place. However, Ness noted that relying on holdback bonds comes with its own set of problems. “We’ll do whatever we can to help our contractor clients and holdback bonds will provide relief in some circumstances. But they may not be available or applicable on all projects and to all parties working on projects,” he said.

 SAC is also concerned that the Holdback Repayment Bond approach could be risky for general contractors. According to Ness, the “pay-on-demand” nature of the bond could leave a contractor vulnerable in the event an unpaid subtrade or supplier further down the payment chain should file a lien which results in a claim under the bond.

“Contractors should be wary of the short-term fix that a holdback bond would provide, and perhaps explore less risky and more sustainable options,” he said. Ness pointed to the federal assistance initiatives such as the Business Credit Availability Program (BCAP) and the Canada Emergency Business Account (CEBA), both of which were created to provide Canadian businesses with emergency operating liquidity during the COVID-19 pandemic. More information on these programs can be found on the Canadian Construction Association’s website.

The SAC says that none of these alternative approaches are ideal and the best and most appropriate solution to the issue is to eliminate the problem that created it. He is calling on the premier of Ontario and attorney general to issue an amendment to the March 20 order that would exempt the Construction Act from this order.

“We’re here to help wherever we can, and we’ll work with our clients, the government and other stakeholders to find solutions and minimize the impact of COVID-19 on our industry,” Ness added.