Adapting to change: Prompt payment and adjudication in Canada
As is the case in many countries, the construction industry in Canada is a major economic force. While estimates vary, the industry is estimated to employ 1.6 million people in Canada, to contribute CAD151 billion to the Canadian economy on an annual basis and to represent 7.4 percent of Canada’s GDP.1 Moreover, the size and complexity of projects have grown dramatically this century, with numerous multibillion dollar projects, ranging from transit to energy to social infrastructure, at various stages of procurement and construction.
It is only fitting then, that despite a reputation in some corners for being a traditional industry that is slow to change, legislative reform has been sweeping across the country over the last 5 to 7 years in particular, to adapt to industry demands. The focal point of this reform has been the adoption of prompt payment and adjudication in numerous provinces, as well as for projects carried out by the Canadian federal government.
Although this change has not been universal, with some provinces still at various stages of considering such reforms, the trend is clear.
What legislation governs the payment regime in Ontario?
Ontario, with a population of just under 16 million people, is Canada’s most populous province and the first to adopt these reforms, with Ontario’s prompt payment and adjudication regime having come into force in October of 2019. Accordingly, the Ontario experience is the furthest along and will be the focus of this comment.
The Construction Act, R.S.O. 1990, c. C.30, as amended, is very broad in scope. It encompasses construction lien and trust remedies, prompt payment and adjudication. This comment, however, focuses only on the prompt payment and adjudication components of the legislation. As is the case with other Canadian jurisdictions that have adopted prompt payment and adjudication, the two concepts are intrinsically linked, with both coming into force on October 1, 2019, through amendments to Ontario’s Construction Act (formerly known as the Construction Lien Act).
What is the effect of this legislation?
The Ontario prompt payment and adjudication regime comprises a system of statutory deadlines for payments on construction projects, with significant consequences for any failure to abide by them that are enforceable largely through the adjudication process, which is binding on an interim basis. Although adjudication captures more than payment disputes, a scope that will be expanding with pending, further changes to the Construction Act in 2025, adjudication can be considered the “teeth” for ensuring compliance with the prompt payment requirements.
The prompt payment structure is built around the submission by a contractor2 to the project owner of a “proper invoice”, the minimum requirements of which are prescribed and can be supplemented by contract. Where the timing of the delivery of the proper invoice is not set out in the parties’ contract, the default submission is monthly. Once the proper invoice is delivered, it sets in motion a cascading series of deadlines for payment by an owner to its contractor, by the contractor to its subcontractors and so on down the construction pyramid. The Construction Act also dictates the timing and process for disputing a proper invoice.
The following graphics set out an overview of the applicable deadlines:
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As illustrated above, there are circumstances under the Construction Act that require a referral to adjudication, but adjudication is also generally open to any party to a construction (or design) contract or subcontract, provided that the dispute at issues falls within the scope of matters that may be adjudicated.
To what type of contract does the payment regime apply?
The payment regime applies to all construction contracts and subcontracts that fall within the jurisdiction of the province. In most cases, the regime will similarly apply to design contracts for construction projects.
What types of disputes can be referred to adjudication?
Contracting parties are permitted to refer any of the following categories of disputes to adjudication:
- The valuation of services or materials provided under the contract.
- Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
- Disputes that are the subject of a notice of non-payment.
- Amounts retained as a set-off in accordance with the Construction Act.
- Payment of a holdback under the Construction Act.
- Non-payment of holdback under section 27.1.
- Any other matter that the parties to the adjudication agree to, or that may be prescribed by regulation.
There has been a great deal of discussion over whether the scope of matters that can be adjudicated is limited to “payment disputes” or is more expansive than that. The present wording of the Construction Act would generally suggest the latter. Note also that with changes pending to the Construction Act in the near future, the scope of matters that may be referred to adjudication will likely be broadened.
What is the format of an adjudication?
Adjudication in Ontario is an interim, binding process. The nature of the procedure typically depends upon the size and complexity of the dispute, the agreement of the parties and, ultimately, the discretion of the adjudicator. However, most adjudications proceed simply by way of brief, written submissions.
While adjudicated determinations are enforceable through the court, with clear remedies under the Construction Act for the failure of a party to comply with a determination, and the standard for challenging an adjudication through judicial review is high, the Construction Act specifically acknowledges that the subject matter of an adjudication can be litigated or arbitrated in another forum, on a final basis. The hope of course is that parties will be disincentivized from doing so.
A detailed discussion of the procedural aspects of adjudication, including the nuances of what happens where the parties do not agree upon an adjudicator, and the nature of the hearings themselves, is beyond the scope of this comment. However, the graphic below provides a basic overview of the process:
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The Construction Act only provides for one “Authorized Nominating Authority”, being the body that administers adjudications and trains and qualifies adjudicators. That organization is called Ontario Dispute Adjudication for Construction Contracts (ODACC). As things stand, only an ODACC roster adjudicator can be appointed for an adjudication.
However, one of the major approved Construction Act changes that is pending in 2025 will permit parties to appoint a “private adjudicator”, the fees for whom can be set by agreement, provided that private adjudicator is qualified by ODACC. It is anticipated that this change will significantly broaden the range of prospective adjudicators and perhaps see a corresponding increase in the complexity and size of matters proceeding to adjudication. The full impact of course remains to be seen.
What impact has the payment regime had on the construction industry in Ontario?
ODACC reporting
One of ODACC’s prescribed mandates is to provide detailed annual reporting. Accordingly, detailed statistics about the progress of adjudications in Ontario are readily available and can be tracked from year to year. While there was a general perception in the early days of Ontario adjudications that uptake was slow, the more recent statistics show significant growth.
For example, in the 2024 fiscal year, 277 adjudications were commenced, and 151 determinations were rendered (including 16 adjudications that had been commenced in 2023).4 In addition, the average amount claimed was CAD620,367.25, with the highest average being in the industrial sector.5 Accordingly, there is a general perception that the prevalence of adjudications in Ontario is on the rise. Although reporting is available in other jurisdictions, such as Alberta, as well, it is likely premature to make similar predictions in those jurisdictions.
Reported case law
With Ontario now having surpassed the five-year anniversary of the introduction of adjudication, there has been a build-up of case law that has arisen from judicial reviews that have been sought of adjudicated proceedings and other proceedings relating to enforcement and jurisdiction. Our courts have generally been deferential to the mandated adjudication process, but there have been examples of successful judicial reviews.
While parties can take comfort in the enforceability of the interim adjudication process, they can do so knowing that the courts are prepared to step in where they find jurisdictional or procedural fairness issues that make setting aside an adjudication appropriate.
What reforms do you expect to the regime?
Changes to the Construction Act have recently been approved. They await regulations and are not yet in force, although it is generally assumed that they will proceed as planned, in the coming months.
The changes cover various aspects of the construction lien remedy under the Construction Act. However, they also extend to prompt payment and adjudication, with perhaps the most major impacts being the opening up of adjudication to private adjudicators, the potential expansion of the scope of matters that can be adjudicated and the ability of any party to an adjudication to require multiple adjudications to be consolidated, in a manner that will be prescribed by regulations (under the current Act it is just the contractor).
Other considerations unique to Canada
Even a very broad overview of prompt payment and adjudication in Ontario, and in Canada generally, would not be complete without emphasizing a unique feature of our legislation. Unlike other international jurisdictions that have adopted a prompt payment and adjudication regime, Ontario and other provinces have maintained a robust construction lien regime that continues to operate parallel to and independently of the adjudication process, despite falling under the same legislation. In other words, in provincial jurisdictions,6 there is nothing in the prompt payment or adjudication process that changes the right of a party to seek to secure the debt that it claims by preserving a construction lien against the project and property at issue.7 The result is a multi-layered range of rights that carries with it strategic considerations that are beyond the scope of this overview.
