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Retro is not cool… when it comes to prompt payment – Legal Desk, Summer 2023

August 22, 2023 | By Dan Leduc

August 22, 2023 – I am seeing a disturbing cash flow trend (in Ontario, at least) that, left unchecked, will take us back in time, not forward. Notwithstanding the changes made to the Ontario Construction Act in 2018 and 2019—and especially those surrounding prompt payment—in the last month alone, I have seen in construction documents:

1. Contract terms designating payment to be 45 days from receipt of an invoice.
2. In unit price contracts, negotiation and submittals prior to a proper invoice being accepted by the payment certifier.

45 days later

The construction industry is premised on cash flow; the examples above interfere with timely cash flow and are, in fact, breaches of the Ontario Construction Act, which states:

Payment deadline, owner to contractor: 6.4(1) Subject to the giving of a notice of non-payment under subsection (2), an owner shall pay the amount payable under a proper invoice no later than 28 days after receiving the proper invoice from the contractor (2017, c.24, s.7).

28-day terms, not 45. This becomes clearer when you consider Sections 4 and 5 of the Act:

No waiver of rights: 4) An agreement by any person who supplies services or materials to an improvement that this Act does not apply to the person or that the remedies provided by it are not available for the benefit of the person is void (R.S.O. 1990, c.C.30, s.4; 2017, c.24, s.69).
Contracts to conform: 5(1) Every contract or subcontract related to an improvement is deemed to be amended in so far as is necessary to be in conformity with this Act (R.S.O. 1990, c.C.30, s.5[1]).

These clauses render most payment terms that deviate from 28 days likely unenforceable.

Unit price contracts

Mandating some form of prior approval on quantities or amounts would also be a potential contravention of the Act especially when one considers the definition of a “proper invoice”:

6.1 In this Part, “proper invoice” means a written bill or other request for payment for services or materials in respect of an improvement under a contract […] and, subject to subsection 6.3(2), meets any other requirements that the contract specifies:

1. The contractor’s name and address.
2. The date of the proper invoice and the period during which the services or materials were supplied.
3. Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied.
4. A description, including quantity where appropriate, of the services or materials that were supplied.
5. The amount payable for the services or materials that were supplied, and the payment terms.
6. The name, title, telephone number, and mailing address of the person to whom payment is to be sent.
7. Any other information that may be prescribed (2017, c.24, s.7).

There is also a procedure for delivering a proper invoice:

6.3(1) Proper invoices shall be given to an owner on a monthly basis, unless the contract provides otherwise (2017, c.24, s.7).
Restriction on conditions: (2) A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of a payment certifier or on the owner’s prior approval is of no force or effect (2017, c.24, s.7).

Two things to note:

1. The definition of “proper invoice” has nothing to do with quantities or amounts agreed upon in advance—even informally. It requires the contractor (the one with a direct contract with the owner) to determine the amount payable for the services or materials supplied.

2. Any type of provision in a contract that speaks to any kind of prior approval is of no force or effect… yet I am seeing such provisions in specs that will likely form part of the contract documents.

The purpose behind enacting changes to the Ontario Construction Act (and to equivalent provisions in other Canadian jurisdictions) was to get the industry back to better cash flow, which benefits everyone—not just subs, but also consultants and owners.

Hurdles to prompt payment need to be addressed, either through your trade or construction association, or some other avenue. If we don’t stem the tide, slow and protracted payments will become the industry norm once again.

Dan Leduc is a partner at Soloway Wright LLP, and specializes in construction law. He is always happy to take on new clients from anywhere in Canada, and can be reached at dleduc@solowaywright.com.

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