October 14, 2020
The changes to the Construction Act that came into effect in 2018 and 2019 should be familiar to most in the industry by now. By way of reminder, Prompt Payment and Adjudication came into force on October 1, 2019. In essence, new payment timelines and obligations were instituted to address the chronic payment delays that plagued the construction industry. Pursuant to these new provisions of the Act, if payments fail to flow per the new Prompt Payment timelines, then contractors and subcontractors are able to commence a statutory dispute resolution mechanism called “Adjudication” that would see the matter resolved by a qualified adjudicator in about 60 days. It’s a form of rough justice that has worked in the UK for more than 20 years and the hope was that it would work here too.
The body that runs the Adjudication process (ODACC) released its annual report for the first year of Adjudication and the numbers do not appear to be promising as of yet. Some key take-aways are noted below:
- There are 65 ODACC certified adjudicators, including lawyers, engineers, project managers, quantity surveyors, architects and others.
- 32 adjudications were commenced:
- 22 residential (avg. amount claimed ~$22,000)
- 5 commercial (avg. amount claimed ~$361,000)
- 2 public buildings (avg. amount claimed ~120,000)
- 3 Transportation and Infrastructure (avg. amount claimed ~$124,000)
- Only 3 adjudications were completed, all of which were in the residential sector. The average amount required to be paid was $11,819.80.
Remember, for Adjudication to be applicable, the prime contract and the procurement process must have been after October 1, 2019. Most Projects are therefore still not under Prompt Payment and Adjudication. As such, it is no surprise the first year for roll-out of Adjudication is slow. Despite all the efforts at educating the industry, these statistics seem to indicate a lack of industry buy-in on any appreciable level. Anecdotally, smaller subcontractors appear concerned they will jeopardize their future business by demanding compliance with Prompt Payment or by commencing an adjudication. One can only guess whether triggering an adjudication process will result in any consequences being imposed by municipal Owners or large GCs. This is a problem, as Prompt Payment and Adjudication are mandatory for applicable projects. Parties must comply with the Construction Act and any attempt to contract out of the Act is unenforceable. We cannot stress enough, from a legal standpoint, the safest course of action is always to comply with the Act.
Given the slow adoption by the industry, and from discussions with clients and industry stake holders, we anticipate these new provisions will be most readily adopted and utilized by large suppliers who are further down the chain, have less competition and who therefore have more leverage and a corresponding lack of fear of reprisal. Nonetheless, as time progresses, and more projects fall under the auspices of the new Construction Act, even the most recalcitrant parties will have to come around to Prompt Payment and Adjudication or face significant legal exposure otherwise.
The Construction Team at Koskie Minsky is able to assist with any questions you may have about the changes to the Construction Act, Prompt Payment and Adjudication and how they might affect your business. Should you have any questions, please click here to contact one of our Construction lawyers.