You Bet Your Glass – Prompt Payment recommendations fall short of expectations
We’ve been duped – Part 1
June 6, 2017 By Frank Fulton
In the last edition of You Bet Your Glass I told you about all the wonderful things recommended by the review of the Ontario Construction Lien Act that were meant to, at long last, provide some fairness to the trades in the construction pyramid: prompt payment, mandatory interest on late payments, binding dispute resolution, the right to suspend work, and so on and so on.
Any day now, Ontario Premier Kathleen Wynne and Attorney General Yasir Naqvi will put out self-promoting press releases and assemble the media to proclaim how the millions of dollars they spent to review and re-write the CLA will support growth in the construction industry, how it will protect the 400,000 jobs in the sector and how the new prompt payment provisions will result in fewer lay-offs, lead to increased investment in machinery and reduce construction costs.
Don’t believe a word of it! For practically every benefit to the trades provided in the recommendations there is a takeaway or overriding condition to negate the benefit. It is an expert exercise in legal doublespeak providing only the façade of fairness. I had great expectations that the review was going to be transparent and equitable and that it would level the playing field. I now feel we’ve been deceived and duped. It is a slam-dunk win for owners and general contractors. The power remains where it always has been and the trades will continue to be contractually abused and mired in debt chasing their receivables. Allow me to explain.
The review recommends that a prompt payment regime be legislated and that payments to subcontractors be within 35 days of submission of their invoice. Wonderful! However, it then further recommends the owner can dictate the schedule for the submission of those invoices. So, instead of invoicing a project on a monthly basis and being paid monthly, the contract documents could state, at the whim of the owner, that the invoicing schedule will only be every two, three or four months, or even at the completion of the project. Of course, this results in the trades having to finance work for lengthy periods of time and finding themselves no better off, and potentially worse off, than under the previous rules where their payments were simply dragged out.
Prompt Payment Ontario naively told its members that if you know the invoicing schedule at the time of bidding the project, you can simply add the carrying costs to your quote. This may work in a theoretical utopian world where financing and resources are not an issue, but in the reality of our market seldom is there room to pad your bid and most of the trade contractors I know don’t have a line of bankers willing to double their debt to finance their work in progress. I’m also well aware that material suppliers are not willing to extend longer payment terms and all the employees I ever had expected to be paid weekly, not every three or four months. This may benefit large corporations with the deepest pockets and will assuredly result in fewer bids and higher construction costs, but the typical trade contractor will be able to bid fewer projects while continuing to be buried in debt financing projects that should be financed by the group at the top of the construction chain.
At the end of April it was announced that the all but three of the recommendations were in the process of being drafted into the new legislation. This invoice submission schedule manipulation issue will be in the new CLA along with a number of items that will work to the detriment of the glazing contractors and other trades in Ontario. I’ll discuss these in the next issue of You Bet Your Glass.
On a number of occasions, the OGMA brought all of its concerns and recommendations to Bruce Reynolds (the chief legal architect of the review), Ontario Attorney General Yasir Naqvi, and to Prompt Payment Ontario, the coalition of trade interests fighting for prompt payment legislation. Our expectation was that PPO would champion OGMA’s concerns on behalf of the trade contractors of Ontario. They refused to but stated that the OGMA was free to do so of our own accord. PPO had previously however written to Minister Naqvi meekly requesting that arbitrary invoice submission schedules be permitted only from owners through the construction hierarchy and that general contractors not be permitted to adjust the schedule. Other than that, PPO made no comments on the review. Neither Reynolds nor Naqvi extended the OGMA the courtesy of a reply.
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