10 Things you’ll need to know about Payment Procedures for Capital Repairs
By Gerald R. (Jerry) Genge, P.Eng., C.Eng., BDS, BSS, Q.Med., C.Arb.
There are major changes to the old Construction Lien Act (now the Construction Act) that significantly affect payment and claims for non-payment.
Here are 10 things that you should know.
- Capital repairs are now specifically included in the Act. Therefore, building repairs of any sort that are not normal “maintenance”, like servicing equipment or landscaping, are included in the provisions of the Act. You cannot contract out of the payment provisions in the new Act. Neither can a subcontractor or supplier that supplies directly to the improvement.
- All the prompt payment provision in the new Act get started once a “proper invoice” has been received. Then, Owners have 28 days to pay undisputed amounts. That’s not when the Board meets again; not when the Treasure returns from Florida; and not when the Owner has time to get approval. Its 28 days. To now, contracts usually included Supplementary Conditions that extended the payment period. Since nobody can contract out of the Act, those will be void.
- Disputed amounts can be withheld but proper notice must be given within 14 days of the dispute specifying which amounts are in dispute and why. Undisputed amounts must still be paid by 28 days. If an invoice is revised, the original date cannot be changed. The 28-day clock is still ticking.
- The “proper invoice” goes to the Owner. Often, an invoice first went to the consultant for certification. If the “proper invoice” goes to the owner first, they may pass it along to the consultant to review/certify. Since disputed amounts will likely be so deemed because the work is either incomplete or deficient, a smarter process would have a draft invoice reviewed before the contractor sends the “proper invoice”.
- If Owners don’t comply with these provisions, a contractor can require a payment adjudication. Adjudicators (read “inquisitors”) can be chosen by agreement but only from those rostered by the ODACC Authority. Only ODACC rostered adjudicators can do adjudications.
- Adjudication fees are fixed for claims up to $9,999 and range from $800 to $3,000. If the claim is more than that, hourly rates apply ranging from $250/hour to $750/hour depending on the claim value. It is more affordable than other options
- Adjudicators can order payment amounts as well as payment of interest and adjudication costs if the adjudicator decides the payment denial or claim was frivolous, vexatious, or an abuse of process.
- Parties to an adjudication can appeal an adjudicator’s determination with “leave” of the court – meaning that you had better have a good reason to appeal the decision other than that you don’t agree with the finding. A good reason might be about the adjudication process or bias. The courts, in general, would rather that civil issues about payments and defects were handled outside the already overbooked courthouse. The court does not have to tell you why it won’t hear an appeal.
- Owners will have to apply vigilant accounting to the payable amounts. The funds held back to comply with the lien provisions of the Act must be traceable by detailed records on all money in and out of the trust account. Those funds must be allocated to the project and not used for anything else like other capital expenses, operating or maintenance costs.
- The project consultant or project manager may also need to step up their game. They must understand that the contractor has payment rights beyond that in the CCDC or other contract and that new expedited processes for certifying work are necessary. For example, it may become common for the bid documents to include certain requirements for a “proper invoice” – possibly that specific milestones be achieved, certain supporting documents be provided, and certain verification testing be done. Those provisions could then be carried down through the payment pyramid.
There are several complicating issues that may affect how the payment provisions are interpreted by an Adjudicator. For example, the effect of unapproved Change Orders, Change Directives, and Site Instructions that affect costs and the content of a proper invoice. It will make the process of payment and claims for payments far more interesting as this unfolds.
Gerald Genge is an ODACC appointed Adjudicator, and President of Pretium Engineering Inc., and of Arbitech Inc., www.arbitech.ca, a firm specializing in forensic engineering and dispute resolution. For more information, he can be reached at 1.800.838.8183.
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