Ontario's signature legislation for the construction industry was overhauled in 2018 and 2019. The amendments, first introduced in 2017 by Bill 142, modernized the 35-year-old piece of legislation and changed its name from the Construction Lien Act to the Construction Act (the Act).
The Act is designed to ensure that workers who provide services or materials during construction projects are paid on a timely basis. To speed up payments in the construction industry, the Act includes mandatory prompt payment and a fast-track dispute resolution process. Most of the amendments came into force on July 1, 2018, except for the prompt payment and adjudication sections, which came into effect on October 1, 2019.
Changes to the Act impact all construction work and projects in Ontario, including P3/infrastructure, energy, mining, and real estate developments — no matter the size. Several other provinces have pursued their own amendments for prompt payment and adjudication amendments, as has the federal government for federal construction projects. As a group, these changes bring Ontario, and eventually the rest of Canada, in line with practices in Europe, Australia, and most U.S. states.
There are many legal implications, which should be discussed with your construction lawyer. However, what about the implications for your accounting systems? The Act affects construction projects, contractors and subcontractors up and down the construction pyramid. It's important to review your accounting systems and processes to ensure they support the Act.
Five areas of the Act will most impact your accounting back office:
- Proper invoices
- Prompt payment
- Construction holdbacks
- Trust fund rules