Bill 216 and Its Future for the Construction Industry

On November 6, 2024, the Ontario Government passed Bill 216, also known as the Building Ontario for You Act, which makes amendments to the province's Construction Act to ease administrative burdens, encourage timely payments, and improve dispute resolution. The amendments, originating from a 2024 independent review, cover three main elements: holdback, adjudication, and administration.

Some key changes include mandatory annual release of holdback, broader access to adjudication, the introduction of deemed liens for certain design services, and a clearer definition of “proper invoices.” Some amendments are yet to take effect but will apply to contracts entered into before their enforcement date.

What does Bill 216's 2024 Royal Assent mean for Ontario's Construction Act?

Source :  Soumission Rénovation

Mandatory Annual Release of Holdback

Under the previous system, the Construction Act allowed for the release of holdback funds after one year, but this only applied to contracts with a value exceeding $10 million. The new amendments remove this barrier, making annual holdback release mandatory for all contracts, regardless of their dollar value. Furthermore, owners must now publish notice within 14 days of the contract’s anniversary date, signifying their intention to release any holdback accumulated over the past year.

Bill 216 also creates a clearer framework by requiring a set deadline for lien expiry when it's linked to an annual holdback notice. Previously, the deadline for filing a lien was established based on when the work was completed. Now, however, when the owner issues an annual holdback notice, any liens for that work will expire 60 days after the notice's release. This gives contractors and subcontractors a clearer timeframe for when they can expect payment.

This amendment also removes the possibility of withholding payment due to disputes unrelated to the contract itself, and the holdback must be released even if there are ongoing disagreements, provided no valid lien exists. It's important to note that these changes will not apply retroactively to contracts that are already in effect, but will come into force with a one-year transition period.

Broadened Access to Adjudication

The amendments expand the scope of adjudication in Ontario’s construction industry by allowing more flexible dispute resolution options. Previously, adjudication was limited to matters relating to payment and had to occur before the contract or subcontract was completed. Now, however, adjudication can be used for any matter that the parties agree to, or for any prescribed matter under new regulations, offering greater flexibility for resolving disputes.

One significant change is the ability to consolidate multiple disputes concerning the same improvement. Previously, only contractors could request consolidation of adjudications, but now the amendments allow any party to initiate consolidation. This is especially helpful when multiple contracts are involved in a single project, as it reduces the potential for contradictory rulings on related issues.

Another notable update is the ability to initiate adjudication up to 90 days after the completion of a contract or subcontract. This flexibility allows parties to seek adjudication even after lien rights have expired, providing an additional layer of protection for those involved in unresolved disputes. Furthermore, parties can now choose their own adjudicator, allowing for more tailored and effective dispute resolution.

Deemed Lien for Design Services Where Improvement Not Commenced

A major issue addressed by the amendments is the lack of lien rights for design and consulting services when a planned improvement does not proceed. Previously, the Act did not provide a clear lien remedy for professionals like architects and engineers when their work was not linked to a completed project. The new amendments create a deemed lien where design services are provided but the improvement does not proceed.

The legislation now ensures that if an owner retains a holdback related to services such as plans, drawings, or specifications for a planned improvement that ultimately does not commence, the service provider is deemed to have a lien on the property for the value of their services. This is especially significant for service providers in the early stages of a project, such as architects or engineers, who often face challenges securing compensation when a project is canceled or delayed.

The exception is if the owner can prove that the value of the property was not enhanced by the services provided, which would effectively negate the lien. This provision is designed to protect professionals from losing out on payments for work done, particularly when projects are abandoned before construction begins.

Improper Invoices and the Definition of “Price”

The amendments bring greater clarity to the definition of what constitutes a "proper invoice." Previously, owners had considerable discretion to determine what information was necessary for an invoice to be considered “proper,” often leading to ambiguity and delays in payment. The changes now require that if an invoice is deemed improper, the owner must notify the contractor within seven days of receipt, specifying the issues and what must be done to correct them.

This stipulation is designed to prevent owners from withholding payment simply by not approving an invoice on vague or arbitrary grounds. The seven-day notice period provides a clear timeline for both parties to address issues before the payment is deemed valid. For contractors, this change enhances the security of payment and the transparency of the process.

Additionally, the amendments clarify the concept of “price.” Where no specific price is stipulated in the contract, the Act previously deemed the market value to be the price. Now, new regulations may be established to define a “price” that better reflects the delivery model used, rather than defaulting to market value. This is particularly relevant in alternative delivery models, such as Design-Build or Construction Management, where the pricing structure may differ from traditional contracts.

These changes align with broader goals to streamline payment processes, reduce disputes over invoices, and ensure that both contractors and owners have clear guidelines on pricing and invoicing expectations. By addressing common points of contention, the amendments aim to improve cash flow and reduce the need for legal intervention in invoice disputes.

Transition and Next Steps for Bill 216

Source : Lsco

Bill 216's transition provisions outline how the amendments to the Construction Act will be implemented. While most amendments take effect upon proclamation by the Lieutenant Governor, there are specific exceptions to ensure a smoother transition for participants in the industry.

For contracts entered into before the amendments come into effect, the new annual holdback regime will still apply, but with adjusted timelines. The first mandatory release of holdback will occur on the second anniversary of the contract’s execution following the amendments' effective date. At that point, the owner must release all accrued holdback, including amounts from previous years.

For example, if the amendments take effect on August 1, 2025, and a contract was signed on November 10, 2024, the first annual release of holdback would happen on November 10, 2026. This payment would cover holdback amounts accumulated since the contract's start date.

These provisions aim to give stakeholders time to adapt to the changes, particularly the new financial obligations and administrative requirements. Industry participants should ready themselves for the updated holdback regime, ensure contracts are aligned with the new,  expanded scope of adjudication, and look into developing strategies to address potential disputes under the revised framework.