Lien Act Stings Contractors

Don Procter

June 2009

The business of construction in Ontario can be likened to water: It works its way around impediments and barriers. While that may be a positive thing in some scenarios, it has been bad news for many subcontractors (including drywall contractors) stung by holes in the Construction Lien Act that prevent them from collecting money owed for services rendered.

"You should have your money for work completed or still have your lien rights so you can get that money, but with the way that business has adapted to the Lien Act, that is not the case,” explains David Zurawel, vice president, policy and government relations of the Council of Ontario Construction Associations.

COCA is leading an alliance that proposes amendments to the act to better protect contractors. The Interior Systems Contractors Association is a key player in that alliance and has provided legal counsel to COCA to help draft the language of the amendments.

While the lien period for a subcontractor under the province’s act is 45 days, the billing time tends to be 60 to 90 days, says Ron Johnson, deputy director, ISCA. "By the time many subs realize they are not getting paid,” he says, "their lien rights have expired.”

Contractors or unions (liening for health and welfare benefits, pension benefits or wages) should not be without their money or their lien rights. "They should never be without both but currently it is the practice that they find themselves without both. Pragmatically speaking, the act simply doesn’t work as it is designed to work,” Zurawel says.

Furthermore, the subcontractor holdback (10 percent of the sub’s total contract value) is often not being paid back to them by the general contractors. On a good-size job, that hurts. "If a holdback is held on a job, workers don’t get paid. … It can ultimately fold a business,” Zurawel says.

The key proposed amendment calls for automatic release of the holdback on substantial completion of the main contract. "It means on the 45th day they get their money back,” Johnson adds.

Changes also call for extension of lien rights through to the substantial completion of the main contract.

COCA, which has been trying to get amendments to the Lien Act passed for almost a decade, is optimistic that reform will happen, possibly this year. Business practices have outgrown the act’s last revisions implemented in 1990.

"Early indications from the (provincial government) minister responsible are that if we can come up with industry-wide consensus that the liberal government would act on it,” explains Johnson.

Zurawel points out that while the amendments are a step forward, the province isn’t about to head down the path taken in the United States where a "friendly lien” is automatically applied when a contractor takes on a job. "It’s not a matter of trust; it’s just a way of doing business to make sure people pay,” he says. "For Americans, the notion of a friendly lien as a way to do business isn’t such a stretch or a leap, but in Canada where things tend to be far more conservative, I don’t think the industry is ready for it.”

Changes to the Lien Act will also facilitate positive changes to Ontario’s Condominium Act as well, Zurawel says.

Currently, if a contractor wants to apply a lien against a condo project, the contractor must file liens against individual unit holders, a potentially long and expensive process that can cost them more than the value of their holdback.

The alliance for reform includes the province’s building trades and the Carpenters & Allied Workers Loc 27. COCA has 32 member organizations, representing more than 10,500 construction businesses and more than 400,000 employees in the ICI and heavy civil construction industry.

Don Procter is a free-lance writer in Ontario, Canada.