In conjunction with the Government of Ontario’s Fall Economic Statement, the province has published its Final Report on the 2024 Construction Act Review.
This review took place over the last 12-months, let by Duncan W. Glaholt. It was commissioned by Ontario’s Ministry of the Attorney General to assess and recommend updates to the Construction Act, focusing on: payment holdbacks, adjudication, and other administrative processes.
Key proposals and themes from the report include:
1. Mandatory Annual Holdback Release: The report suggests making the annual or phased release of holdback payments mandatory across the construction industry. Currently, the process is optional, creating cash flow challenges, especially for smaller subcontractors.
2. Mandatory Annual Flow Down Payment of Basic Holdback Received by Contractors and Subcontractors: Related to the mandatory annual release of basic holdback, the report recommends all basic holdback received annually by a contractor or subcontractor shall be paid to those from whom that contractor or subcontractor kept holdbacks within 14 days, without setoff, if there are no preserved or perfected liens on title in respect of the subcontract.
3. Expanded Adjudication Access: The report advocates broadening adjudication rights to cover all disputes under construction contracts, ensuring faster, interim binding resolutions, and reducing costly litigation. Recommendations include simplifying processes and removing barriers to encourage more frequent use of adjudication. The report further recommends permitting adjudication to be commenced for a period of 90 days following the earliest of the date that a contract is completed, abandoned or terminated.
4. Multiple Disputes Referred to a Single Adjudication: The report recommends where the parties find themselves facing multiple disputes arising out of the same contract and factual matrix, it should be open to them to jointly recommend consolidation of those disputes into a single adjudication, subject to the agreement of their adjudicator, or, alternatively, recommend the order of determination of the disputes, again subject to the agreement of the adjudicator.
5. Simplified Administrative Processes: Amendments are proposed to clarify lien and payment regulations, prevent unnecessary legal complications, and support simpler, more transparent project management. These changes aim to improve efficiency and reduce disputes over regulatory ambiguities.
6. Improved Protections for Design Professionals: The report discusses extending lien rights to pre-construction services provided by design professionals, as their work often precedes visible improvements yet adds value to projects.
Comments:
Litigation Exclusion Clauses Including Adjudication: Another interest group suggested the prohibition of adjudication reprisal or exclusion clauses. This was a practical concern involving the application of the following clause “The City may reject a Bid from a Supplier where in the opinion of the Treasurer in consultation with the City Solicitor, the commercial relationship between the City and the Supplier, including any sub-contractor the Supplier intends to use, has been impaired by the act(s) or omission(s) of the Supplier or sub-contractor, within the five-year period immediately preceding the date on which the Bid is to be awarded” in the face of a prior adjudication by a contractor. The parties found their way through the serious policy concerns over a reprisal clause being triggered by a statutory right effectively written right into the contract, however there was lingering concern. In my view this is part of a larger policy-driven conversation.
Conflict Avoidance Procedure: One institutional consultee proposed adoption of a dispute avoidance system in addition so statutory adjudication and summary lien enforcement procedures already in the Act. The suggestion was that “Pursuant to such a conflict avoidance process, parties to a contract or subcontract could elect to appoint from the ODACC roster a conflict avoidance expert or panel (the “CAE”). This CAE would be provided with the contract/subcontract and related documents and may then be engaged upon request by the parties to either provide guidance to help coach the parties through issues arising under the contract/subcontract or to provide a non-binding determination and suggested way forward within no more than 28 days. The CAE would be empowered by the parties to take on a more inquisitorial and collaborative approach to resolving the dispute, working together with parties to get to the heart of the issues and identify practical solutions agreeable to all parties. Where the CAE’s determination is not accepted by both parties, they may then proceed to adjudication (or other dispute resolution process).” This process (or the RICS “CAP” process in the U.K.) has merit and may be worthy of further examination.
Overall, the report stresses the need for a more predictable, fair, and equitable framework to support Ontario’s construction industry, focusing on reducing cash flow problems and legal disputes while maintaining robust protections for all parties.