Key Changes coming to Ontario's Construction Act: What Bill 216 Means for Holdback, Adjudication, Administration, and More

In February 2015, nearly a decade ago, Bruce Reynolds and Sharon Vogel were appointed by the Ministry of the Attorney General and the Ministry of Economic Development, Employment and Infrastructure to conduct an expert review of Ontario’s Construction Lien Act. Their review culminated in a comprehensive 435-page report, published in 2017, which included 100 recommendations for legislative reform. Many of these recommendations were adopted by the legislature and integrated into the updated Construction Act.

One of the key recommendations was for an independent review of the Act to be conducted within five years of the new legislation’s enactment, with subsequent reviews every seven years thereafter.

The first of these independent reviews was completed by our firm’s founder, Duncan Glaholt, whose report, 2024 Independent Review: Updating the Construction Act, was released on October 30, 2024. The report includes 44 new recommendations for further reforms. As Mr. Glaholt notes, through consultations with stakeholders, three major themes emerged: holdback, adjudication, and administration.

Coinciding with the release of Mr. Glaholt's report, Bill 216, Building Ontario For You Act (Budget Measures), 2024, went through its first reading on the same day. By November 6, 2024, Bill 216 had passed its second and third readings and received Royal Assent.

Schedule 4 of Bill 216 introduces amendments to the Construction Act, which, upon proclamation by the Lieutenant Governor, will come into force on a yet-to-be-determined date. A review of the Bill reveals that, once again, the legislature has largely embraced the recommendations from Mr. Glaholt’s 2024 Independent Review.

Key Changes in Schedule 4 of Bill 216

Mandatory Annual Holdback Release: 

One of the most significant changes is the introduction of mandatory annual holdback release. Under section 26(4), an owner shall make payment to a contractor of all the accrued holdback in respect of services or materials supplied by the contractor during the year immediately preceding the anniversary, unless a lien has been preserved or perfected and not discharged, vacated, or satisfied.

Notices of annual release of holdback must be issued by owners in the prescribed form no later than 14 days after the anniversary date. Liens arising from the supply of services or materials covered by a notice of annual release of holdback will expire 60 days after the notice is published.[1]

Holdback and Designers: 

A new provision under section 14(4) addresses situations where an owner retains a holdback for the supply of a design, plan, drawing, or specification for a planned improvement that is never started. In such cases, the holdback provisions of section 14(1) will apply, unless the owner proves the value of their interest in the land has not been enhanced.

Proper Invoices and Prompt Payment: 

Section 6.1 has been amended to refine the criteria for a proper invoice. Invoices must now include details such as the period, milestone, or payment entitlement, contract identifiers (e.g., contract number or purchase order number), and any additional information requested by the owner to facilitate the accounts payable process. If an invoice is missing any of these details, it will still be considered a proper invoice unless the owner notifies the contractor in writing within seven days, specifying what is required.

Adjudication Process: 

Significant changes have been made to the adjudication regime, including the ability for adjudications to be conducted by private adjudicators, provided they are qualified by the Authorized Nominating Authority. The scope of adjudications is now governed by Regulations rather than being explicitly listed in the Act. Additionally, parties may refer disputes to adjudication on any matter agreed to in the contract or prescribed by Regulation.

Regarding the availability of adjudication, Bill 216 modifies the availability of adjudication from being tied solely to “completion”, and provides that:

• An adjudication in respect of a contract may not be commenced if the notice of adjudication is given more than 90 days after the date on which the contract is completed, abandoned or terminated, unless the parties to the adjudication agree otherwise. 
  
• An adjudication in respect of a subcontract may not be commenced if the notice of adjudication is given more than 90 days after the earliest of,  
  
  • the date on which the contract is completed, abandoned or terminated, unless the parties to the adjudication agree otherwise;  
  • the date on which the subcontract is certified to be completed under section 33; and 
    
  • the date on which the subcontractor last supplies services or materials to the improvement. 

Another key update is the ability to object to an adjudicator's jurisdiction during the adjudication process, and the ability of the adjudicator to make determinations regarding his or her own jurisdiction, mirroring the competence-competence principle in arbitration. Adjudicators can also correct errors or amend determinations to address oversights, on their own initiative or upon request.

Housekeeping Amendments: 

Several administrative updates have been introduced.

For instance, the definition of “price” has been expanded to allow the Regulations to set a price for contracts or subcontracts in situations where the parties fail to agree on one, other than the market value of the services or materials supplied. Additionally, the definition of "written notice of a lien" now includes a copy of any claim for lien registered or given under section 34.

Mr. Glaholt’s report also recommended that the Regulations explicitly permit the joinder of trust claims in lien actions, with the court having the discretion to sever claims or require separate trials or procedures as needed. In response, Bill 216 includes a new section 50(4), which states that "the procedures prescribed for the purposes of this Part may provide for the joinder of a lien claim with another claim in an action, in which case this Part applies to the other claim as it does to the lien claim." As a result, it is anticipated that the Regulations will allow for the joinder of lien and trust claims.

However, as of the date of this article, the Regulations have yet to be amended to implement the intended changes.

Additionally, a new section 1(5) is being introduced to clarify that when multiple improvements are to be made under a single contract, and those improvements are to lands that are not contiguous, then, if the contract so provides, each improvement will be considered as part of a separate contract.

Transition Provisions:

Upon proclamation, most amendments in Bill 216 will take effect immediately, applying to all improvements in the province, including those under contracts entered into prior to the amendments' effective date.

However, there are some exceptions. For instance, the first anniversary date for mandatory annual release of holdback under the new rules will be the second anniversary of the contract, following the enactment of the amendments.

Additionally, the new transition provisions (section 87.4) do not affect the existing transition provisions (section 87.3) related to the 2017 amendments. Specifically:

• the amendments in Bill 216 will not apply to an improvement if the contract was entered into or the procurement process commenced on or before June 30, 2018;[2] and 
• the amendments in Bill 216 respecting Part I.1 (Prompt Payment) and Part II.1 (Adjudication) will not apply to an improvement unless the contract was entered into or the procurement process commenced on or after October 1, 2019.[3]

The recommendations from Mr. Glaholt and the amendments in Bill 216 demonstrate an ongoing effort to streamline and modernize the Construction Act. Notable updates, particularly those related to the availability of adjudication and mandatory release of holdback, are poised to have a significant impact on Ontario's construction industry. Owners, contractors, and subcontractors need to be mindful of their updated obligations, particularly around holdback retention and payment, lien expiry deadlines, and adjudication timelines.