Construction Project Disputes and the New Interim Adjudication Provisions – What Parties to a Construction Project Need to Know

July 9, 2019 | Michael Farace, Elyse Calvi

The new interim adjudication provisions under Section 13 of Ontario’s Construction Lien Act (now called the Construction Act) (the “Act”) are scheduled to take effect on October 1, 2019.

The Act’s new interim adjudication provisions were introduced in an effort to expedite the resolution of construction project disputes in a manner that avoids delaying the construction schedule while maintaining the steady flow of payment through the construction pyramid.

Irrespective of the size or complexity of a construction project, disagreements between parties to a construction contract are destined to arise. Owners, general contractors and subcontractors alike must take into consideration the Act’s changes to, and impact on, construction project dispute resolution.

Before October 1, 2019 – The CCDC Dispute Resolution Regime

Traditionally, parties to a construction project have entered into a written, CCDC form contract, which contains a dispute resolution process. The CCDC dispute resolution process normally proceeds as follows:

  1. A consultant to the contract is brought in in an attempt to resolve the dispute at issue.
  2. If a consultant is unable to resolve the dispute, the parties proceed to mediation in accordance with the rules for mediation of construction disputes (provided for in a form known as CCDC 40). Pursuant to the rules, the parties are to agree to a mediator within 20 working days after the contract is awarded or within 10 working days after a party provides written notice requesting the appointment of a project mediator. If the project mediator is unable to resolve the dispute within 10 working days, the mediator will terminate the mediation by providing notice to all parties.
  3. After 10 working days following the date that mediation is terminated, either party may refer the dispute to arbitration. These rules are also captured in the CCDC 40 form. If the parties do not agree, in writing, to pursue arbitration within the 10 working days after the termination of mediation, then the parties may proceed to court.

Moving Forward – New Interim Adjudication Provisions Under the Act

It is important to note that these new interim adjudication provisions will only apply to construction contracts, including subcontracts, that are entered into after October 1, 2019. Construction contracts entered into before October 1, 2019 are subject to a grandfathering clause and will not be bound by the new adjudication provisions.

Unlike the traditional CCDC dispute resolution regime, the Act’s new adjudication provisions stipulate a 46-day completion time frame. This expedited process favours parties with organized and up-to-date documentation, as such parties will be in a better position to commence and/or respond to claims within the stipulated time frame.

The government will authorize nominating authorities that will provide a list of adjudicators who will oversee disputes.  This authority will train, qualify and appoint adjudicators when parties cannot agree as to which adjudicator should oversee their dispute. The adjudicators will likely be quantity surveyors, architects, engineers and lawyers.

Under the Act’s new interim adjudication provisions, adjudicators have broad powers and are able to issue directions regarding the conduct of the adjudication, visit sites, conduct inspections and obtain the assistance of experts. Adjudicators are also able to order that one or both parties pay the expert’s fees.

Pursuant to subsection 13.5(1) of the Act, parties to a construction contract will be able to adjudicate the following disputes:

i. the valuation of services and/or materials provided under the contract and/or subcontract;

ii. payment under the contract or subcontract, including under approved, unapproved and proposed change orders;

iii. disputes related to a notice of non-payment under the new prompt-payment regime;

iv. set-off claims;

v. the payment and/or non-payment of holdbacks; and

vi. any other matter that the parties to adjudication agree to.

It is important to note that the new interim adjudication provisions are available to subcontractors, not only general contractors and owners. Adjudication is even available when a matter is being litigated or arbitrated.

Parties can create a procedure within the contract as to how adjudication is to be processed as long as it complies with the Act; however, if they fail to do so, the procedures set out in the Act and its regulations will govern the adjudication process. The new interim adjudication provisions can be briefly summarized as follows:

Step 1 – Notice of Adjudication

A party will issue a notice of adjudication with a brief description of the dispute, including the nature of the relief sought and the name of a proposed adjudicator. If the parties are unable to agree on an adjudicator, the authority will appoint one within seven days of a request being made.

Step 2 – Appointment of an Adjudicator

Upon the appointment of the adjudicator, the applicant that issues the notice of adjudicator will provide to the adjudicator the original notice of dispute, a copy of the contract or subcontract and documents to be relied on during the adjudication within five days.

Step 3 – The Determination

The adjudicator will issue a determination with 30 days of receiving documents from the parties. The 30-day period can be extended by the adjudicator’s request for a further 14 days if the parties agree to the extension.

The adjudicator’s determination is binding on all parties until there is a decision of a court or arbitration. The determination can be filed with the court and enforced as a court order.  There will be limited liability for judicial review. As such, an adjudicator’s decision is very unlikely to be overturned and it is generally limited to being overturned on the basis of fraud or the adjudicator’s bias.

In the event an adjudicator’s determination is appealed, it still remains binding on the parties throughout the duration of the construction project, until a further determination is made by a court or arbitrator or unless the parties agree otherwise.

Step 4 – Issue of Costs

The costs of the adjudication are to be shared equally between the parties, such that each party is required to bear its own costs. Section 13.7 of the Act will enable an adjudicator to order that a party pay some or all of the other party’s costs if that party was found to have acted in a manner that was frivolous, vexatious, an abuse of process or other than in good faith.

If there is a determination that requires a payment from one party to the other, that amount must be paid within 10 days after the determination is received, failing which, the party who is to be paid (be it a general contractor or subcontractor) can suspend work until payment is received. In addition, if there is a suspension and payment is not made, interest can be claimed for payment, as well as the costs associated with the general contractors’ and subcontractors’ suspension and resuming of work.

Will This Adjudication Model Be Helpful With Respect to Construction Projects?

The Act’s new adjudication process and provisions will help construction projects by providing a mechanism for parties to rapidly bring forward disputes that cannot be resolved to a third-party adjudicator, who will make a decision in a relatively short time frame and, thereby, allow the project to move forward.

To allow a dispute to linger and not be resolved will obviously increase the risk of delay and disrupt the sequence of work on a project, all of which could cause a domino effect in relation to damages and costs for various parties to a construction contract.

The adjudication model that will come into effect on October 1, 2019 provides an excellent process for avoiding delays and having disputes resolved in a manner that will save all parties time and money. Moving forward, contracts should stipulate terms for adjudication in order to streamline the process.

 

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This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

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