Top ten tips to getting paid
August 27, 2019 by Dan Leduc
The attention to prompt payment legislation at the federal and provincial level proves the ongoing and entrenched knowledge that the construction industry is premised on cash flow and therefore capitalization is, if not the primary, at least one of the primary goals for any construction. Getting paid is therefore a crucial priority. With that in mind, the following Top 10 List is a healthy start to achieving a healthy cash flow.
1 Be Proactive – waiting to get paid without taking any steps on your own, only makes the later task of trying to get paid more crucial and costly. Banks and financial institutions look at the age of your receivables. Achieving cash neutrality or at least trying to, namely shortening the time as to when any particular dollar is spent and when it is recovered, is key. Humans tend to procrastinate when tasked with unenjoyable duties. Waiting to pursue your money does you no good.
2 Meet in Person – it is human nature to delay a response via prolonged email or text message exchanges. It is much more difficult to deny someone an answer, such as answering “when are we getting paid?” in person. Meet with your debtor’s key representatives, in person and discuss the issue of getting paid. If a promise or representation is made to you about getting paid follow up with an e-mail as it may serve you later if you take legal steps to recover the monies owed to your company. Prompt payment legislation will be a platform on which you should be able to get paid sooner but default on timely payment will still occur.
3 Never Do Work under Protest – far too often clients are prepared to do work under protest. There is a long-standing case from the Supreme Court of Canada (Peter Kiewit Sons’ Co. v. Eakins Construction Ltd.,  S.C.R. 361) that stands for the proposition that you cannot do work under protest when your contract has a mechanism for disputes involving such items as scope changes. At a minimum, if you are proceeding to do work you believe is outside your scope, and yet someone else believes it is in your scope, at a minimum communicate a reservation of rights, namely that you are reserving your rights to make a claim for the cost associated with the disputed work notwithstanding performing the work at this time.
4 Pay When Paid Clauses – this type of contract clause will only apply to contracts downstream from the general contractor and typically provides that you as a sub contractor, sub- subcontractor or supplier are not paid until the entity you have contracted with has been paid. The enforcement of these clauses has dwindled a little in recent years however if the clause is still clearly worded, it can be enforceable in Ontario.
5 Check Your Interest Rate – with the provision of the new Construction Act, section 6.9 mandates that interest be paid on overdue amounts either pursuant to the Courts of Justice Act where the interest rate stipulated in your contract or subcontract, whichever amount is greater. Anglo American business principles have generally held for the last 100 years, that interest is payable on overdue accounts. Why should it be no different for your invoices? It is a small measure of compensation for the late payment and one that you should not ignore. Also, make sure that your contract or subcontract expresses interest in an annual effective rate. Without that annual effective rate, interest may not be enforceable pursuant to Canada’s Federal Interest Act.
6 Know How to Certify a Subcontract for Early Release of Holdback – section 33 of the Construction Act provides a mechanism for those sub- trades that perform work early on in a project (i.e. excavation, concrete supply, concrete placement, steel supply, steel erection, etc.) to have their subcontracts certified as complete (not substantially performed which is a different mechanism) and then permit payment of the holdback associated with that particular subcontract 60 days from the date of that certification rather than waiting several months for payment of the holdback at the end of the project and only after substantial performance has not only been certified, but also published.
7 Know How Labour & Material Payment Bonds Work – a labour and material payment bond is another mechanism available to you to get paid. Although it may not be part of a prompt payment strategy, it is still available for those who qualify as a “claimant” under the bonds, to get paid. Do not be shy and asking for a copy of the labour and material payment bond at the outset of the project. Recent case law in Canada has made it mandatory for those up the construction contractual chain to disclose labour material payment bonds in a timely manner when requested. Section 39 of the Construction Act also allows you the statutory mechanism to request a copy of any applicable labour and material payment bond.
8 Know Your Lien and Trust Claim Rates – we have had lien legislation in Ontario for over 100 years. Although resorting to a lien or a trust claim is not typically characterized as part of a prompt payment strategy, the timely registration of the lien can effect payment of a receivable in a quick manner when the opportunity for leverage presents itself. Should your lien rights have expired, you also have the ability to resort to Part II of the Construction Act which is a breach of trust claim if you believe that the entity owing you money has received money in respect of work you have performed. The breach of trust provisions are very powerful as they can permit you to pursue officers, directors and certain employees for that particular debt as result of a breach of trust.
9 Know How to Trigger Adjudication – starting with contracts made after October 2019, adjudication will become a mandatory dispute resolution mechanism. Where there is a default in payment, know how to issue a notice of adjudication and be prepared to follow the process as it can provide you with a quick decision, typically under 40 days, in respect of the defaulting payment and monies owed to you. As well, should you win that adjudication and there is a payment award associated with the decision, and that payment is not made within 10 days of award, you have the leverage and ability to suspend work under the contract in question.
10 Written Notice – almost all standard form construction contracts mandate some form of written notice as a precondition to making a claim for additional or outstanding compensation. Compliance with those requirements has now reached this stage of mandatory compliance with case law in Ontario over the last 5 to 6 years. Simply put, if you do not comply with the notice provisions in your contract, you will almost certainly forfeit the ability to advance your claim. Be prepared to read your contract before you sign it and take particular note of the notice requirements. <>
Dan Leduc is a partner at the law firm of Norton Rose Fulbright LLP practising exclusively in the domain of construction Law. He may be reached by e-mail at email@example.com.