September 17, 2015 by Canadian Underwriter
Potential changes to Ontario’s Construction Lien Act – possibly involving labour and material payment bond sureties – will be considered by a Toronto City Council committee next Monday.
On the agenda for the Executive Committee meeting Sept. 21 is a recommendation that city staff “make oral and/or written submissions to any groups or bodies, including the Ontario Legislature, to protect the interests of the City by expressing the City’s position on issues related to the Construction Lien Act and its potential amendment.”
Last February, the province “launched an expert review of the Construction Lien Act,” city staff noted in a Sept. 3 report to the Executive Committee.
The province anticipates the review will be completed by December, the Ministry of Attorney general stated in a backgrounder last February. Issues to be considered in the review include surety bonds and default insurance, the province stated in an information package on the review.
“It is anticipated that the Review will lead to draft legislative amendments and ultimately a bill through the Legislature to enact changes,” Toronto City Solicitor Anna Kinastowski and City Manager Peter Wallace wrote in their staff report to the Executive Committee, which is made up of Mayor John Tory and 12 city councillors.
In their staff report, Kinastowski and Wallace referred to a private member’s bill – an Act Respecting Payments Made Under Contracts and Subcontracts in the Construction Industry (Prompt Payment Act) – which was Bill 69 in a previous session of the legislature. Kinastowski and Wallace did not specifically mention surety bonds or default insurance in their report to Toronto’s executive committee.
The Prompt Payment Act was referred in 2013 to the Standing Committee on Regulations and Private Bills but was not passed into law. The bill died on the order paper with the June, 2014 election. The Prompt Payment Act was intended to address the problem of contractors not getting payments in a “timely fashion” – either by project owners or general contractors – said Liberal MPP Steven Del Duca (now the Transportation Minister) in 2013 when he introduced the private member’s bill.
“I cannot tell my phone company, ‘Listen, I am not paying you this month, because I did not get paid my salary,’ and I cannot tell my landlord ‘I’m not paying my rent until my subtenant pays me,’ yet this is exactly what takes place in the construction industry,” Liberal MPP Dipika Damerla told MPPs at Queen’s Park in Toronto in 2013 during a debate on the Prompt Payment Act.
The Surety Association of Canada had “serious concerns” about the Prompt Payment Act, though it was “supportive of the principles” behind it, SAC president Steve Ness said before the regulations and private bills commitee in early 2014.
Surety bonds provide “guarantees against the risks associated with a contractor’s potential default under the underlying contract,” according to the information package for the provincial review of the Construction Lien Act. “First, when a contractor defaults, the project will come to a halt if the contractor stops performing its obligations under the contract and is not proceeding with the work. Second, the contractor will fail to pay its subcontractors who will likely register liens against title to the project.”
The Prompt Payment Act was “silent on what happens should a contractor exercise their rights” to either suspend or terminate a contract in the event that a progress payment on a construction project is not made on time,” Ness told the regulations and private bills committee at Queen’s Park in 2014. SAC’s members include 17 primary insurers offering surety bonds in Canada.
The review on the Construction Lien Act is being conducted by construction lawyer Bruce Reynolds, senior partner at Borden Ladner Gervais LLP. Reynolds will be supported by BLG lawyer Sharon Vogel, whose specialties include litigation of construction disputes, surety bond claims, construction insurance claims, and architects’ and engineers’ errors and omissions claims.
According to the information package, the review will consider:
•requiring labour and material payment bond sureties to promptly pay undisputed amounts;
•the potential for requiring labour and material payment bond payees to complete their subcontracts if in the best interests of the project;
•mandatory labour and material payment bonding of all public projects;
•requirements in respect of the adjusting of bond claims;
•providing for the electronic delivery of surety bonds;
•whether bond claims should be subject to adjudication;
•whether changes to the third party beneficiary rule are appropriate in order to enable payment by owners directly to subcontractors and suppliers; and
•whether the Construction Lien Act requires any revisions in light of the existence of contractor and subcontractor default insurance.