PMPG 5018: Fundamentals of Construction Management

MODULE 5: REGULATORY PROVISIONS AND ONTARIO CONSTRUCTION ACT

Agenda Today

Understanding of Regulatory
Framework/Provisions

Understanding of Ontario
Construction Act

Case Study: Ron Engineering

Review/Recap Canadian
Construction Industry
CCDC Contract
Documents

Assignment # 2
Construction: Regulatory and Legal Provisions
Construction: General Construction Law: governs and
regulates contracts for the design and
Regulatory construction
Provisions
Licenses and Permits: official
permissions, licences or consents

Health and Safety: rules and regulations

relating to health and safety on
construction sites, such as OSHA

Environmental Assessment and

Sustainability: Federal and provincial
legislations
Construction
Legal Framework
Infrastructure and Utilities:
(Contd..) arrangements made with the local
authorities and utility suppliers,
such as PTTW

Other Obligatory Requirements:

terms and conditions imposed or
implied by law or mandatory in
contracts, such as Building code
Canadian Law With the exception of the civil law system in the Province
of Québec, Canada is a common law jurisdiction.

This means that Canadian law is derived primarily both

from statute and common law

Statute : Acts and legislative instruments of the federal

Parliament of Canada and provincial and territorial
legislative assemblies made in accordance with Canada’s
Constitution.

Common law : the decisions of the Canadian Courts and

tribunals, also known as ‘case law

Copyright © 2016 Brian M. Samuels and Doug R. Sanders

General Canada is a Common Law jurisdiction –
Construction law derived both from statues and court
decisions. Laws relevant to the
Law construction industry:

• Legislation – Statutes which govern construction

operations and the delivery of infrastructure, such
as, Ontario Construction Act
• Contract law – governs agreements and
arrangements between parties, such as, construction
contract
• Law of tort – addresses, and provides remedies for,
civil wrongdoings not arising out of contractual
obligations, such as, negligence
• Others: Law of restitution, Breach of statutory duty
  While contracts are a voluntary process, in that a party

Contracts vs. has a choice as to whether or not to sign a contract, tort

Tort obligations are involuntary and imposed by the law.

obligations
 A negligence claim is commonly asserted by a party who

has been injured, either financially or physically,

 No contractual relationship between the plaintiff and

defendant is necessary in a negligence claim; however,

negligence claims often arise between parties with a

Copyright © 2016 Brian M. Samuels and Doug R. Sanders contractual relationship.

Ontario In 1983, the Government enacted the
Construction Act: Construction Lien Act to replace the
History and Mechanic’s Lien Act.
Evolution
The Construction Act (“Act”) has been in
Ontario passed amendments to the
Construction Act to:
effect replacing The Construction Lien Act:
• Modernize the construction lien and • July 1, 2018 – Amendments to liens and holdback
holdback rules rules
• Help make sure that workers and • October 1, 2019 – Amendments dealing with
businesses get paid on time for their prompt payment, adjudication and right to
work information
• Prompt payment and adjudication are the new
• Help make sure payment disputes are
provisions
addressed quickly and painlessly.
Ontario PART I: General

Construction PART I.1: Prompt Payment

Act: Contents
PART II: Trust Provisions

PART II.1: Construction Dispute Interim Adjudication

PART III: The Lien

PART IV: Holdback

PART V: Expiry, Preservation and Perfection of Liens

PART VI: Right to Information

 PART VII: Discharge of Preserved or Perfected Liens
Ontario
Construction Act: PART VIII: Jurisdiction and Procedure
Contents (Contd..)
PART IX: Appointment of Trustee

PART X: Appeals

PART XI: Priorities

PART XI.1: Surety Bonds

PART XII: Miscellaneous Rules

 “contract” means the contract between the owner and the contractor, and includes any

Ontario amendment to that contract;

Construction “owner” means any person, including the Crown, having an interest in a premises at whose

Act: Definitions request and, (a) upon whose credit, or (b) on whose behalf, or (c) with whose privity or
consent, or (d) for whose direct benefit, an improvement is made to the premises but does not
include a home buyer;

“contractor” means a person contracting with or employed directly by the owner or an agent of
the owner to supply services or materials to an improvement and includes a joint venture
entered into for the purposes of an improvement or improvements;

"lien" is a legal right granted by the owner of property, by a law or otherwise acquired by a
creditor

“lien claimant” means a person having a preserved or perfected lien;

“holdback” means the 10 per cent of the value of the services or materials supplied under a
contract or subcontract required to be withheld from payment
 “subcontract” means any agreement between the contractor and a
subcontractor, or between two or more subcontractors, relating to the
supply of services or materials to the improvement and includes any
amendment to that agreement;

Definitions “subcontractor” means a person not contracting with or employed directly

by the owner or an agent of the owner but who supplies services or
materials to the improvement under an agreement with the contractor or
under the contractor with another subcontractor and includes a joint venture
entered into for the purposes of an improvement or improvements;

“improvement” means, in respect of any land, (a) any alteration,

addition or capital repair to the land, (b) any construction, erection
or installation on the land, including the installation of industrial,
mechanical, electrical or other equipment on the land or on any building,
structure or works on the land that is essential to the normal or intended use
of the land, building, structure or works, or (c) the complete or partial
demolition or removal of any building, structure or works on the land;
 Construction laws now include a prompt
payment framework to make sure that
OCA Provisions: contractors, subcontractors and workers are
paid on time.
Prompt Payment

Owners and general contractors must agree to a

deadline to submit an invoice. If they do not
agree, the contractor will be required to submit
invoices to the owner on a monthly basis.

Owners are required to pay general

contractors within 28 days after the owner
receives the invoice from the contractor .
Prompt
Payment General contractors must pay subcontractors seven days
(Contd..) after receiving payment from the owner.

Subcontractors must pay other subcontractors within seven

days of receiving payment from whomever hired them for
the project.

Contractors and subcontractors have a right to charge

mandatory interest on late payments beginning when the
amount is due. Interest would be the prejudgment rate
determined under the Courts of Justice Act or the rate set out
in the contract or subcontract, whichever is higher.
Payment
In cases where there is a dispute about the amount owed or the
Dispute quality of the work:
• Owners are permitted to deliver a notice of non-payment to the
contractor within 14 days of receiving the invoice from the
project owner
• Contractors are permitted to deliver a notice of non-payment
within 7 days to the subcontractor. subcontractors are
permitted to deliver a notice of non-payment within 7 days to
other subcontractors they hire
Resolving Effective October 1, 2019, a new adjudication
Payment process gives people and businesses an
alternative to going to court to resolve payment
disputes.

The key features of the adjudication process are

Authorized Nominating Authority
as follows:
13.2 (1) The Minister responsible
for the administration of this Act • Adjudicators are experts with extensive experience in
may designate an entity to act as the construction industry and experience or training in
Authorized Nominating Authority dispute resolution
for the purposes of this Part. 2017, • The Authorized Nominating Authority, oversees the
c. 24, s. 11 (1). new interim adjudication regime by training and
qualifying adjudicators, maintaining a registry of qualified
adjudicators, and performing other duties and services
outlined in the legislation and supporting regulations
 Disputes must be heard by an adjudicator from the
Resolving registry of adjudicators, who may be selected by the parties
or by the Authority
Payment
(Contd..)
The parties and the adjudicator may agree to the fees of the
adjudicator. If they do not agree, the fees will be determined
by the Authority in accordance with a fee schedule published
on the Authority’s website.

The adjudicator will issue a determination in

approximately six weeks, which will be binding on the
parties, on an interim basis, until the dispute has finally
been resolved in court or arbitration, or by agreement of the
parties. If the parties are satisfied with the determination,
they may agree to treat it as final.
OCA Provisions:
Post
Adjudication
If, after adjudication, the individual or business owing
money refuses to comply with the determination, the
party that is owed the money has the right to:
Enforcement of amounts payable
• stop work under the contract
(2) A party who is required under • charge mandatory interest on late payments
the determination of an adjudicator • enforce the adjudicator’s determination by filing a
to pay an amount to another person certified copy in the Superior Court of Justice.
shall pay the amount no later than
10 days after the determination has The adjudicator’s determination cannot be appealed,
been communicated to the parties to but it can be challenged on certain grounds, such as
the adjudication. 2017, c. 24, s. 11 adjudicator bias.
(1).
OCA Provisions: A construction lien: a charge/security that can be
registered on title to the property by anyone who
Construction has supplied services or materials to improve the
Lien property.

14 (1) A person who supplies New Rules for Construction Lien

services or materials to an
improvement for an owner,
contractor or subcontractor, has a
• Preservation of Liens: The Act has been amended
lien upon the interest of the owner to increase the deadline to preserve a lien from 45 days to
in the premises improved for the 60 days.
price of those services or materials. • Termination of a contract has been added as a trigger in
R.S.O. 1990, c. C.30, s. 14 (1); determining the timeline for preserving a lien. If a contract is
terminated, a Notice of Termination under Subsection 31(6)
2017, c. 24, s. 12 (1), 66. (Form 8) must be published by the owner, contractor or a
person whose lien is subject to expiry.
OCA
Provisions: A holdback is a requirement that all owners,
contractors and subcontractors withhold 10%
Holdback of the cost of the services or materials they
supply on a project. This helps to make sure
that there is enough money to satisfy any lien
claims that may come up.

Permissible forms of holdback: the Act has

been amended to provide for the holdback to
be retained in funds (cash), a letter of credit
or holdback repayment bond and forms for
these instruments are included in the
regulations.
 Payment of holdback: the Act have been amended to
require the payment of the holdback once all liens that
Holdback may be claimed against the holdback have expired or been
(Contd..) satisfied, discharged or otherwise provided for under the
Act.
Holdback • Annual and phased release of holdback: the Act
(Contd..) provide that holdback may be released on an annual or
phased basis if certain conditions are met, including the
following:
• The contract provides for such payment;
• The contract price is $10 million or higher; and
• There are no preserved or perfected liens or all liens
have been satisfied, discharged or otherwise provided
for under the Act.
Ontario Construction Act: Recent
Changes
Some of the key changes include:

• Language in the legislation has been clarified to better

reflect large-scale, public projects that have multiple
owners.
• Contractors and subcontractors have 60 days to register
a lien and 90 days to start a court action.
• Contractors and subcontractors must follow specific
bookkeeping rules to protect subcontractors in the event
of bankruptcy.
 Public sector owners, such as the
Crown, municipalities and broader
Recent Changes public sector organizations, are
required to have a surety bond on
public contracts

Alternative financing and procurement

arrangements (AFPs) are subject to a
minimum coverage limit to protect
subcontractors and workers if the
general contractor files for bankruptcy.
 The Act applies, with some modifications, to a project
New rules regarding agreement between the Crown, a municipality or a
broader public sector entity with a special purpose entity
alternative financing in relation to AFPs as if the agreement were a contract.
and procurement
(AFP)
It also applies to agreements between the special purpose
entity and the contractor as if the agreement were a
subcontract.

The agreement between the special purpose entity and the

contractor applies for determining the amount of
the holdback.

The special purpose entity is deemed to be the owner of

the premises
Bond • On entering into a public contract, a contractor shall furnish
Requirements the owner with surety and labor and material payment bond.
(Surety and Performance
bonds)
• The surety bonds must meet the following requirements:
• must be issued by an insurer that is licensed under
the Insurance Act to write surety and fidelity
insurance, have a coverage limit of at least 50% of
the contract price and extend protection to
subcontractors and suppliers.
• Labor and material payment bonds must extend
protection to subcontractors and persons
supplying labor or materials to the improvement.
Right to Section 39 of the Act has been amended to clarify
the right to require information from an owner or
Information contractor in relation to:

The state of accounts between the owner and the

contractor with specific information; and
A statement of whether the contract provides
for payment based on the completion of
specified phases or milestones.
Right to
Similarly, there is now a right to request
Information information from a contractor or
(Cont..) subcontractor in relation to the state of
accounts between the contractor and a
subcontractor or between a subcontractor
and another subcontractor.

A landlord whose interest in the premises is

subject to a lien must provide information
relating to the lease and the state of
accounts.
 As a Group, review the
Reading #4: R v Ron
Case Study Engineering and
Construction (Eastern)
[30 min] Ltd
Review and answer prep – 20 min

Presentation & discussion – 10 min Answer the questions and

present your findings to the
class
 R v Ron Engineering and Construction (Eastern) Ltd Case
of 1981 is the leading Supreme Court of Canada decision
R V Ron on the law of tendering for contracts.
Engineering
Case The case concerned the issue of whether the acceptance of
a call for tenders for a construction job could constitute a
binding contract.

RE&C (Resp.) submitted tender that contained $150k

deposit, accidentally forgot to include $750k in estimate,
was awarded the contract because of the error.

RE&C wanted to amend the error, but owner refused to

allow them to withdraw. Tender is irrevocable as per the
submission guidelines
 Original Decision: The trial held that the deposit was kept by the
Owner and dismissed the counter-claim
Court
Decisions
Appeal Court Decision: According to the existing system, it was defined
that the Contractor was able to withdraw the offer that was spoiled by
mistake any time until the official contract and tender were accepted.
As a result, it was ordered to the Ontario representatives to return the
deposit to Ron Engineering without any money refunded or taken away.

Supreme Court Decision: Reversed the Appeal Court decision arguing

that the Law of mistake was not enough to provide the tender owner
with a number of relief conditions. Contract A (the evident result of a
complaint tender submission with the intention to trigger the relations
between the parties) and Contract B (the identification of the conditions
under which the Owner of the Agreement can accept the tenderer’s
conditions.
Specific 1. What is the two contract logic
of the Ron Engineering Case?
Questions to
Answer
2. What is the significance of
Supreme Court Decision in this
regard?

3. What is the lessons learnt for a

company like Ron Engineering &
Construction?
References
DLA Piper (2019, March 1), Real World Law Construction:
https://www.dlapiperrealworld.com/law/index.html?t=construction&s=legal-framework&c=C
A

Ontario Ministry of Attorney General (2019, October 1), Changes to the Construction Act:
https://www.attorneygeneral.jus.gov.on.ca/english/construction_law_in_ontario.php
 Project Management Institute® Inc. (2017). A Guide to the
Project Management Body of Knowledge
(PMBOK®) 6th Edition. Newton Square,
References Pennsylvania: Project Management Institute ® Inc.

(Contd..) Project Management Institute® Inc. (2016). Construction

Extension to the PMBOK® Guide. Newton Square,
Pennsylvania: Project Management Institute ® Inc.

Harris, F., McCaffer, R., & Edum-Fotwe, F. (2013). Modern

Construction Management 7th Edition. John Willey
& Sons, Ltd. West Sussex, UK.
THANK YOU.