It has been over a year since adjudication and prompt payment came into effect in Ontario under the Construction Act, R.S.O. 1990, c. C.30 (the “Act”). Despite this, as of September 21, 2020, only eight adjudications had been completed and eight were in progress. The seemingly slow adoption of adjudication in Ontario is partly due to the fact that the former Construction Lien Act continues to apply where a contract for an improvement was entered into before July 1, 2018 or a “procurement process” for the improvement was commenced before July 1, 2018 by the owner. In addition, the impact of COVID-19 has slowed construction in some respects. (Interestingly, some Toronto projects have reportedly been able to finish ahead of schedule due to COVID-19 related reductions in road traffic.)
Statutory adjudication is one process by which the prompt payment obligations under the Act are enforced. The changes to the Act, including the introduction of prompt payment and adjudication, were designed, in part, to bring construction projects to completion faster and with fewer payment delays. In the construction context, adjudication is the determination of a dispute arising under a contract by an adjudicator who is a qualified person appointed to conduct an investigation and make a quick decision. The adjudicator’s decision is called a determination. The types of disputes that can be referred to adjudication are: the valuation of services or materials, payments under a contract, including in respect of a change order, those related to notices of non-payment or holdbacks and any other matter that the parties to the adjudication agree to or that may be prescribed.
What advantages does adjudication have over other dispute resolution processes? For starters, adjudication is quick; determinations are made in 39 to 46 days (unless the parties agree to an extension). It also tends to be less expensive than litigation or arbitration. Adjudication allows the parties and the adjudicator to tailor the process, rules and timeline for the adjudication based on the complexity of the dispute and the dollar amounts involved (while still complying with the Act). Such a customized process helps to ensure proportionality. The Authorized Nominating Authority (“ANA”) for adjudication under the Act is Ontario Dispute Adjudication for Construction Contracts (“ODACC”). ODACC offers four Pre-Designed Adjudication Processes, each providing for an increasing level of procedural complexity (and corresponding increase in suggested fees). In addition, adjudication is confidential, unlike traditional litigation (at least in theory). ODACC has provided information about adjudications in its 2020 Annual Report, with identifying features about the parties involved removed. However, if adjudicators’ determinations and reasons are being filed with the court, this presumably would waive confidentiality and create a body of case law. How this will play out in practice is yet to be seen.
Why would a party choose adjudication, rather than pursue a lien claim? The lien remedy is particularly useful if payment is not made at the end of a party’s work on a project. It can be a good option if a project is in a later stage or if there are concerns about the solvency of the paying party. Conversely, a party may choose adjudication if a payor is not meeting its payment obligations while a project is still in the early or middle stages. Adjudication is often strategically the way to go during a project to ensure payment continues to flow ‘down the chain’ and work can continue. It is worth noting that a claimant who commences an adjudication can still commence lien proceedings and/or litigation, although contractors, subcontractors and suppliers may have to incur significant legal expense to pursue these avenues to recover the money that is owed to them. It is often prudent to pursue both avenues of potential recovery.