Construction Industry Labour Challenges

See Guy Dixon’s very interesting article, “Construction industry battles biases to attract workers” in the Globe and Mail. Dixon discusses the challenge the construction industry faces in attracting workers despite the availability of secure employment with good earning potential and benefits.

It will be interesting to see how the market – with efforts from industry and government – deals with this problem over the next decade. I suspect that even better pay and benefits will be part of the solution but what will that do to construction costs (and downstream prices for consumers)?

July 1, 2018 – The First Day of the Rest of the New Ontario Construction Act’s Life

Change to the construction payment and lien landscape has been rolling towards us for several years and it’s finally upon us.  So, ready or not, it’s time to learn and implement these changes. Fortunately, to stagger their impact and give people a chance to adjust a bit more gradually, the in-coming changes to the Construction Lien Act (to be renamed the Construction Act) will take effect in two separate phases.  The first set of changes will come into effect on July 1, 2018 and the second set of changes will come into effect 15 months later, on October 1, 2019.

The changes are a result of the passing of the Construction Lien Amendment Act, 2017 in December 2017 and the changes have, as their objectives, improving promptness of payment in the construction industry and “modernizing” the construction lien and trust regime in the Province of Ontario.

The first set of changes are the focus of this post.  A future post will delve into the (arguably more dramatic and complicated) changes coming in 2019.

If you’re inclined to comb through the legislative changes themselves, you can click here to link to the Construction Lien Act and you can click the following links to the new regulations (relating to general matters, forms, and procedures for actions under Part VIII of the Construction Act).

Transition provisions for projects

The first thing to note is that, while a raft of changes take effect July 1, 2018, they won’t necessarily apply to every project.  The transition rules are set out under section 87.3 of the Construction Act and the old Construction Lien Act will continue to have effect if, before July 1, 2018:

  • a contract for the improvement between the owner and the contractor was entered into; or
  • a procurement process for the improvement was initiated; or
  • the premises in question is subject to a leasehold interest, with the lease being entered into before then.

So, no existing construction work or projects will be subject to the new regime under the Construction Act and even projects at a procurement (tendering, RFP) stage at any time prior to July 1, 2018 will remain under the old Construction Lien Act.

So…what’s the big deal? What’s changing on July 1, 2018?

The changes coming into force July 1, 2018 are wide-ranging and scattered throughout the legislation and regulations.  This post doesn’t aim to identify or discuss each and every one of them. Rather, the following is a summary of the most significant changes and those likely to be of the most interest to those in the industry.

Alternative Financing and Procurement (AFP or P3)

There are some new provisions dealing with these unique projects which seek to clarity how the Construction Act will apply to projects with this delivery model having different processes and requirements than “typical” projects.  Because these changes are of targeted application and are quite lengthy, they aren’t discussed in detail here but (for those interested) they can be found at the new section 1.1 of the Construction Act.

Lien Timelines

Perhaps one of the most iconic changes is the demise of the 45-day lien periods with which everyone is so familiar.  The current 45-day period to register (preserve) a lien will now be 60 days and the current further 45 days to perfect a lien will be 90 days.

In addition, “termination” is added as an express 60-day trigger and, in cases of termination, there is a new requirement to publish a notice of the termination as prescribed by regulation.

A word of caution – when it comes to preserving or perfecting a lien, if there is any doubt as to whether a project falls under the old Construction Lien Act or the new Construction Act under the transitionary rules, unpaid parties with lien rights would be wise to assume that the shorter 45-day periods apply in order to avoid the risk of the inadvertent expiry of lien rights.

New Provisions re Trust Funds

Everyone below the owner (contractors and subcontractors) who is a statutory trustee will have new obligations in dealing with trust funds and these include:

  • depositing trust funds in a bank account in the trustee’s name; and
  • maintaining written records regarding the trust funds (debits, credits, transfers) for each trust.

Provided the new rules are followed, funds can be held in a single bank account though it might wind up being prudent and good practice to establish separate project or contract specific accounts to make compliance and accounting easier and less susceptible to error.

Holdback Rules

The new Construction Act makes it mandatory for an owner to release the statutory holdback once the lien period has expired unless the owner

  • publishes a notice of non-payment in the prescribed form within 40 days of the publication of the certificate of substantial performance, and
  • notifies the contractor of the publication.

This new provision requires the owner to have a legitimate reason to refuse to release the holdback and to make it known so that others (contractors and subcontractors) can make decisions and take action accordingly.

Another change related to holdbacks permits the release of holdback on an annual basis or phase/milestone basis where:

  • the contract provides for an annual or phased release of accrued holdback;
  • the contract price is over the prescribed amount (currently $10,000,000);
  • the contract time is scheduled for over one year or provides for work to be completed in identified phases; and
  • there are no liens registered that have not been either vacated or discharged at the time the accrued holdback is to be released.

Mandatory Labour and Material Payment Bonds

All contractors (except architects and engineers) working under a “public contract” (newly defined) are now required to provide labour and material bonds and performance bonds for 50% of the contract price for contracts valued at $500,000 or more.  However, the minimum coverage limit is 50% of the contract price for contracts valued at $100 Million or less, and a minimum coverage of $50 Million if the contract value is $100 Million or more where the project falls under section 1.1 (AFP/P3).

Some Other Miscellaneous Changes to Note

Some of the other notable changes that are a little more difficult to group together include:

  • The “3-2-1 Formula” for determining when substantial performance has been achieved now uses percentages of $1 Million in contract price as opposed to the old $500,000;
  • When a section 39 request for information is sent to a mortgagee and the mortgage funds were advanced, in part, to buy the land and, in part, to finance construction, the mortgagee must identify the amounts advanced under each segment in its response;
  • Condominium unit owners can now expressly bring a motion to vacate liens for work done to common elements from their own units by posting security (this could be done before but required a cobbling together of the Construction Lien Act, the Condominium Act, and caselaw);
  • Lien claims for less than $25,000 can now be brought in Small Claims Court;
  • lien claims and trust claims can now be joined in an action;
  • When vacating a lien by posting security in Court, the maximum security for costs that must be posted increases from $50,000 to $250,000;
  • Appeals from interlocutory orders are now permitted but only with leave of the Divisional Court.

While far from a comprehensive description or analysis of the incoming changes, hopefully the foregoing provides a useful overview of some of the ones of broad application and a sense of what sort of changes to practices and procedures will be required.  If you have any specific questions or would like to consider engaging us to assist you with implementing and navigating the Construction Act please contact me at azasada@sorbaralaw.com or 519-741-8010 x 248.

The Ontario “Construction Lien Amendment Act” Passes

On December 5, 2017, the Ontario Legislature passed Bill 142 – the “Construction Lien Amendment Act” which will dramatically change and modernize the Ontario Construction Lien Act (to be re-named the Construction Act) – legislation that has stood in place in this Province with little in the way of change for decades.

Those involved in the construction industry that will be affected by this new legislation – from owners to lenders to contractors to suppliers – have different and varied interests and so it’s no surprise, really, that there will likely be little consensus as to what changes will represent an improvement to the current regime and which ones will prove problematic. From conversations I’ve had and seminars I’ve attended, though, it seems that there is fairly widespread agreement that 1) some of the changes are overdue and 2) the learning curve for both industry players and their lawyers is going to be relatively steep as the changes take effect.

It’s expected that the amended legislation will roll out and come into force sometime in 2018.

Construction deficiencies at Guelph area gas station result in criminal charges against vendor

It’s not too often that construction deficiencies result in criminal charges being laid but that seems to be what is happening with respect to a gas station North of Guelph, Ontario, CTV News Kitchener reports. Typically, this sort of matter will be pursued and resolved through civil litigation without criminal proceedings even coming onto the radar. Unfortunately, the report (and others I found online) don’t give enough information to cast some light on the reason that, in this case, the conduct of the vendor was considered by police to give rise to potential criminal responsibility.

Lien legislation under review in both B.C. and Ontario

Ontario’s Construction Lien Act is under review and I was recently asked (and agreed) to participate in the process. However, I didn’t know, and just read in “B.C. Builders Lien Act reform getting underway” by Russell Hixson in the Journal of Commerce, that British Columbia’s Builders Lien Act is currently undergoing a similar review. While the lien legislation of the two Provinces share a lot of similarities, they also have some pretty significant differences. It will be interesting to see how the reviews unfold and whether the proposed (and ultimately implemented) changes take the two acts in the same direction or if, instead, one finds a change (or changes) that the other doesn’t.

Elliot Lake, Ontario – Algo Centre Mall collapse – Inquiry Report Released on October 15, 2014

The Report of The Honourable Paul R. Bélanger, Commissioner of the Elliot Lake Inquiry, was released today, October 15, 2014. Click here to access the Report.

Out of this tragedy come a number of significant recommendations (see pages 31-36 of the Executive Summary) and it will be interesting to see whether those recommendations are implemented by the Ontario Government in a meaningful and identifiable way in the future.

Toronto’s condo construction boom

CBC News ran a story on October 13, 2014 entitled, “Fears that shoddy Toronto condos could become future slums“.  The piece outlines concerns that the Toronto condo construction boom of the last few years is resulting in numerous poorly constructed condo buildings that will require major repairs prematurely.

Having practiced construction law in Vancouver in the early-to-mid 2000s, I see a worrisome number of parallels between the development of the “leaky condo crisis” in BC beginning in the mid-to-late 1990s and what seems to be unfolding in Toronto. There are a lot of different theories about what gave rise to BC’s leaky condos but some of the more (I think) accepted factors amongst those “in the know” are: a building boom leading to rapid, “slap it together” construction, climate inappropriate designs, inadequate building code requirements, and a weak/flawed inspection regime. Of concern, these seem to be the same general problems now being identified in Toronto.

Only time will tell whether the current fears about Toronto’s condominium construction market are real or overstated but this is certainly not a potential problem that should be ignored or prematurely dismissed. For those interested, I would suggest that the 1998 report “The Renewal of Trust in Residential Construction” authored by the “Commission of Inquiry into the Quality of Condominium Construction in British Columbia” is an interesting read for some background.

Leaky condos still a problem and aren’t going away for the foreseeable future

The headline is a little bit dramatic but, nonetheless, an article published on May 25, 2014 in the Vancouver Sun, written by Derrick Penner, called, Leaky condo crisis rears its head again in B.C. – Buildings that weren’t fixed earlier now face even costlier repairs is an interesting read and touches on a number of the things addressed in a few of my earlier posts.

Aging condos – bright days ahead for glazing trades?

Patty Winsa’s article Degrading condo windows expected to trigger major wave of replacements in thestar.com, published March 20, 2014, discusses the potential (and sobering) costs associated with large scale glazing (glass) replacement on high-rise condo buildings as window systems approach their expected 30-35 year lifespan.

Failure and replacement isn’t imminent for many condos but if the replacement costs approach what University of Waterloo professor Dr. John Straube predicts, this is a future problem and cost that condominium corporations are going to want to get well out in front of.

Scanning the downtown skylines of Vancouver, Calgary, Toronto, and Montreal (and so on) gives one an appreciation for the prospective magnitude of the amount of money at stake.