Law Times

Law Times • March 9, 2015 Page 5 www.lawtimesnews.com Review of Construction Lien Act a delicate matter BY YAMRI TADDESE Law Times he job of two Borden Ladner Gervais LLP lawyers appointed to review the Construction Lien Act is a delicate one, members of the construction bar say. The Ministry of the Attorney General has tasked construction lawyers Bruce Reynolds and Sharon Vogel with the re- view amid "concerns related to prompt payment and effective dispute resolution in Ontario's construction industry." The ministry also says it's hoping to curb payment delays for those providing services and materials in construction as well as ensure "payment risk is distrib- uted fairly." The Construction Lien Act requires owners to hold back 10 per cent of pay- ments owing to contractors until they meet certain criteria but it doesn't say when they must release those funds, according to Da- vis LLP partner Howard Krupat. "Some people within the industry would like to see a provision that requires the release of those funds at a certain point in time so that they have certainty on when the hold-back funds are going to be released," says Krupat. For those who provide services at the early stages of construction projects, it's not uncommon to wait a very long time to get the hold-back money out, accord- ing to Krupat. "So there's a certain amount of frustra- tion around that issue," he adds, noting part of the problem is that the act, which took effect in the early 1990s, didn't contemplate the kinds of complex construc- tion projects underway today. "Projects have be- come much larger and much more complex than they ever used to be and the Construc- tion Lien Act, at the time that it was imple- mented, may not have fully contemplated the way that it would work for modern infrastruc- ture projects," says Krupat. But the issue isn't as simple as putting a timeline on the release of hold-back funds. That's partly why last year's bill 69, the prompt payment act, was "fraught with problems" according to Keith Bannon, a partner and construc- tion lawyer at Glaholt LLP. If it had passed, the legislation would have imposed mandatory contractual conditions on parties without regard for the different types of contract models used in the construction industry today, says Bannon. Krupat shares the concern. "Any legis- lation that sets a specific time period for releasing funds would interfere with the ability of parties to negotiate those terms in a way that makes sense for the project," he says. "A lot of sophisticated and large infra- structure contracts contemplate the pay- ment upon the achievement of certain milestones," he adds. Typically, contrac- tors pay subcontractors only when the owner pays them, at times cre- ating a pyramid with what some call an un- fair distribution of pay- ment risk. When owners retain payments in addition to the 10 per cent required by law due, for example, to alleged deficiencies or delays in the con- tractor's work, it means even less cash f lowing down the pyramid to reach the bottom. The situation continues un- til the parties resolve the dispute, at times through the courts or arbitration. "It's a difficult problem," says Bannon. "What do you do short of having a full hearing on the merit?" According to Bannon, some proposed solutions include requiring an early no- tice of dispute from payers with an ob- ligation to provide sufficient details to quantify the alleged setoff they're claim- ing. That would allow the parties to de- termine if the claimed deficiencies are re- ally worth the amount held back, he says. But forcing owners to release funds may have its own issues, Bannon adds. "It's a delicate issue which you have to give some real thought to because there's a counter argument that if you force owners to release payment despite po- tential deficiencies, without the ability to maintain sufficient hold back they may require other forms of security in the contract," he says, adding any change must not leave owners without potential recourse for their damages. Often, the owner and contractor ne- gotiate an arbitration clause to try to shorten the time needed to resolve dis- putes. But things get complicated when an owner is in arbitration with the con- tractor while subcontractors simultane- ously bring a claim through a lien action in court. "Unfortunately, you end up with the lien act being caught in a situation where you may have a contractor having to make a decision as to solving the dispute with the owner via arbitration but at the same time being forced to defend lien actions being prosecuted by subcontrac- tors," says Bannon. It would be helpful if there was a way to structure the system so as to stay the lien action while arbitration proceeded or allow parties to bring lien actions into those arbitration proceedings, according to Bannon. "That's one way in which a contractor wouldn't be stuck in the middle and have the option to [deal with both actions to- gether]," he says. The Ministry of the Attorney General says the review will involve "extensive consultation" with the construction in- dustry followed by a report to the prov- ince. "The report will include the results of the consultation process, the expert advice of Mr. Reynolds, and his recom- mendations for changes, if necessary," the ministry said. LT NEWS law.utoronto.ca/ExecutiveLLM GPLLM Global Professional Master of Laws [Get a Master of Laws] Because business issues are legal issues. So if you want to get ahead in business, get the degree that gets you there faster. ONE YEAR – PART - TIME – NO THESIS – FOR L AWYERS AND NON - LAWYERS Untitled-8 1 2015-03-02 11:15 AM It's not uncommon for contractors to wait a very long time to get the hold-back money owing to them, says Howard Krupat. T

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