Construction Act is off to Canada

With nearly 20 years of experience, it may be hard for some of us to remember how novel and innovative adjudication and prompt payment were when they were introduced into the UK.

But this has recently been underlined by the response from the construction industry in Ontario, Canada, which is about to introduce similar measures of its own.

Over the past few months, we have been explaining these concepts – and the teething problems that the UK experienced – to members of the Canadian construction industry, so that they are prepared for some of the seismic changes likely to come about early next year.

It has been interesting to discover the extent to which various aspects of adjudication and prompt payment that we take for granted are surprising and a little unnerving to an audience wholly unfamiliar with them.

Adjudication in the UK is considered to have been hugely successful, but it is not necessarily being welcomed with open arms in Ontario, where a dispute lasting 12 to 18 months (and costing millions of dollars) is considered normal.

So, they ask, what happens when you only have a few days to appoint an adjudicator and only four weeks to rehearse the entire dispute (not forgetting to allow the adjudicator time to think about the issues and make a decision)? The news for Ontario is, of course, good and bad.

The short timeframes can encourage parties to pursue bad claims in the hope of a lucky result. A referring party might spend months preparing its case for adjudication, only for the responding party to be given seven days to formulate its response. Very often, the result is best described as “rough and ready justice”.

But adjudication largely achieves its objective. It keeps the money flowing and very often leads to disputes being resolved without the need for court or arbitration proceedings.

The key to its success has been the robust support of the courts. We have had plenty of debates over the years about whether a dispute has crystallised, whether more than one dispute can be referred to adjudication and the relevance of natural justice.

But the courts have consistently sought to give effect to the intention of Parliament – wherever possible adjudication decisions are enforced. We will have to wait and see whether the courts of Ontario do the same.

Requiring construction contracts to provide an adequate mechanism for payment and periodic/staged payments has undoubtedly helped the UK construction industry. It has largely been successful in stopping endemic poor payment practices that forced parties to wait months or even years to be paid for their work (or to go insolvent while waiting). The desire to adopt a similar system for Ontario is, therefore, understandable.

The default position in Ontario will be monthly payments, precipitated by a “proper invoice” (the equivalent to our payment notice). The invoice is then payable within 28 days, unless within 14 days there is a “notice of non-payment” (the equivalent to our pay less notice) giving reasons why the invoice will not be paid in full.

This is an astoundingly short timetable for those who, at best, are used to spending months with quantity surveyors assessing the value of works undertaken and, at worst, are used to ignoring invoices for a long time with relative impunity.

One of the key practical issues is that employers, consultants, contractors and subcontractors in Ontario do not currently have the internal systems in place to deal with payment in these timescales.

There has been a dawning realisation, however, that valuation and payment processes can no longer be as lengthy or comprehensive. Large and small businesses alike will need to invest time and money in this new regime, or run the risk of overpaying (or being underpaid).

With our experience in the UK, we have provided plenty of examples of parties proactively engaging in the payment process. The result tends to be a project that is better run, more efficient and less liable to give rise to costly disputes.

Equally, however, the UK experience also serves as a reminder that the concept of a “proper invoice”, for example, can give rise to satellite disputes, because of the financial consequences of failing to get the paperwork right.

Following the introduction of adjudication and prompt payment, it will be interesting to see how the construction industry and the courts of Ontario grapple with some of the issues that have exercised the UK construction industry and the courts for the past two decades.

Our paths may diverge, but for now Ontario has given a glowing endorsement of the UK’s system – imitation is, after all, the sincerest form of flattery.

This article was first published in Building Magazine on 15 September 2017. An online version is available on the Building website (subscription required).