Feb 15 2022 | Zayouna Admin

ADJUDICATIONS: A SIMPLIFIED PRIMER ON THE NEW CONSTRUCTION DISPUTES RESOLUTION PROCESS IN ONTARIO

Introduction

Ontario amended the Construction Act, R.S.O. 1990, c. C.30 (“Construction Act”) to promote adjudications as a new way to resolve construction related “interim” disputes. Adjudications under the amended regime are administered by Ontario Dispute Adjudication for Construction Contracts (“ODACC”) and conducted by adjudicators with significant construction industry experience. The legislative idea behind the amendments is to ensure that interim disputes that come up during construction projects do not stop or hold up the projects. To that end, adjudications are specifically designed to resolve construction related disputes cheaply and with speed and efficiency. 

Adjudication v. Dispute Resolution Through the Courts:

The procedural rules that govern court-based litigations are “one size fits all” in nature, meaning that the same set of procedural rules apply to all kinds of disputes. This means that they may not always be appropriate for certain disputes that require speedy and cost-effective disposition, such as interim construction disputes. 

Adjudications operate differently from courtroom litigations and offer a helpful alternative. They cut out the unnecessary procedures and rules and are conducted according to truncated procedural rules that are tailormade to suit the complexity and value of the dispute that is being resolved. 

Another benefit offered by adjudications lie in the subject-matter expertise of the adjudicators. While litigations are decided by judges with legal backgrounds, adjudicators come with a minimum of 10 years’ experience in the construction industry along with necessary training in construction disputes. This allows for an adjudicator to be more familiar with the industry realities underpinning construction disputes. For the parties, this eliminates the need to bring the judges up to speed with the relevant industry knowhow resulting in efficiency, speed, and reduction in costs. 

For the record, ODACC highlights the benefits of adjudication as being “quick”, “cost-effective”, “relatively inexpensive” and that “payments ordered must be made within ten days” from an adjudication award.  

What Disputes Can Be Adjudicated?

Several factors determine whether a dispute can be resolved by adjudications. 

Only interim disputes

Not all disputes can be adjudicated under the new Act. Only disputes that occur during the tenure of a construction contract can be adjudicated as an “interim dispute”. Unless the disputing parties agree otherwise, adjudications cannot be commenced after the underlying contract or subcontract has been completed. 

After October 1, 2019

Adjudications only apply to disputes where the prime contract was signed, or where the procurement processes was commenced, after October 1, 2019. Any other type of dispute may not be submitted to adjudication by ODACC.   

Subject Matter: 

The following types of disputes can be adjudicated against another party to a construction contract: 

1. The valuation of services of materials provided under the contract; 
2. Payments under the contract, including in respect of an accepted or proposed change order; 
3. Disputes that are subject to a notice of non-payment under Part I.1 of the Act; 
4. Amounts retained under Section 12 (set-off by trustee) or under subsection 17(3) (lien set-off); 
5. Payment of a holdback under section 26.1 or 26.2; 
6. Non-payment of holdback under section 27.1; 
7. Any other matter that the parties to the adjudication agree to, or that may be prescribed.

Parties to the Dispute:

Only parties that have a contract (in the form of a prime contract or sub-contract) between themselves can submit the disputes that occur as between themselves to adjudication. Contractual relationship between the parties is necessary for adjudication to happen. 

Adjudication process and timelines:

The process of adjudication is streamlined and customized to suit the nature and value of the claim. It is possible to complete the entire adjudication process and obtain a determination within 35-45 days.  

Commencement and Appointment of the Adjudicator

The claimant commences adjudications by serving a Notice of Adjudication on the opposing party using the Custom System portal on ODACC’s website. The parties have 4 days to agree on an Adjudicator and obtain their consent to adjudicate. Adjudicators can be selected through ODACC’s online portal from its register of Adjudicators. Alternatively, the parties can also ask ODACC to appoint an adjudicator, which appointment is made in 7 days. Consent is provided after the parties and the adjudicator negotiates and agrees on the Adjudication Fee and the process of the adjudication.

Documents and Determination of the Dispute   

Once an adjudicator is appointed, the claiming party has 5 days to submit their supporting documents, while the defending party is required to submit theirs within such time as is preset by the Adjudicator. Once supporting documents are submitted, the Adjudicator has 30 days to make a determination, which would be certified by ODACC within a further 7 days. 

How much does adjudication cost?

The expenses that are strictly necessary to adjudicate an interim construction dispute through ODACC consist of Referral Fees, Certification Fees, and Adjudication Fees. More information is available on ODACC’s website. 

The Referral Fees

The claimant must pay a referral fee to ODACC when it commences the adjudication process. The referral fee is $0 where the claim is less than $50,000; or $500 (plus HST) where the claim exceeds or equals $50,000. The referral fees may be refunded to the claimant where the Adjudicator fails to complete an adjudication unless such failure happened because the parties terminated the arbitration by agreement or the adjudication was consolidated with another adjudication. 

Fees for Certifying Determinations

The decision made by Adjudicators at the end of an adjudication is called a “determination”. ODACC formalizes determinations by certifying them, which the arbitrator is then required to pass on to all the parties to the adjudication. The parties can then use the certified copies of determinations for enforcement purposes. There is no additional cost to certify amended determinations.

Adjudication Fees

The parties have the freedom to choose Adjudicator’s fees with the Adjudicator. If however the parties fail to reach an agreement, ODACC sets down the Adjudication Fees as follows: 

The parties are required to pay HST on the Adjudication Fees. Any ancillary disbursements are charged to the parties at cost. 

From the statistical information given in ODACC’s 2021 Annual Report, we calculate that parties had to pay between $6,500 – $7,000 (plus HST) on average for adjudications conducted by ODACC in the 2021 Financial Year. See below for some statistics. 

Parties represented by lawyers must pay lawyer’s fees on top of the figures mentioned above. Although not necessary, the parties may also incur fees on top of the amounts above for experts and other professionals they hire.  

Who Bears the Costs 

The default position is that the Adjudication Fees are split between the parties equally. This can change if the Arbitrator decides that a different split ratio is appropriate. The winning party thus has the scope to argue for the losing party to pay its costs. For consolidated adjudications, the Adjudicator has the discretion to decide on the split. 

Obtaining Payments under Determinations

If a determination makes an award on a party to pay another party, then such payments must be paid no later than 10 calendar days from the communication of the determination to the parties. A failure to pay by the timeline will cause interest to accrue on the unpaid amounts at rates that are higher than the pre-judgment interest rates stipulated for courtroom litigations. The unpaid party is also then entitled to stop its work in the project. 

If all else fails, an unpaid party can enforce a certified copy of the determination through the courts. 

Some Statistics:

Adjudications are gaining popularity as more disputes arise in respect of prime contracts signed or procurement processes commenced after October 1, 2019. Some interesting statistics emerge from ODACC’s 2021 Annual Report. 

In relation to the 2021 Financial Year:   

• Total Adjudications Commenced: 50
• Total Adjudications Completed: 34 (29 out of the 50 that were commenced in 2021 FY and 5 were commenced in 2020 FY)
• Terminations: 12 (out of the 50 that were commenced in 2021 FY).
  • Stage of Termination: 6 after appointment of arbitrator, 6 before
  • Reasons for Termination: 8 terminated because the parties settled, 3 because the construction contract/procurement process was later found to have pre-dated October 1, 2019, and 1 for other reasons)
• Total Adjudications Completed: 34 (29 out of the 50 that were commenced in 2021 FY and 5 were commenced in 2020 FY)
• Remaining Adjudications Pending Determination: 8
• Total Adjudication Fees Received by ODACC: $223,335 (plus HST) Received in respect of:
  • The 29 adjudications that were commenced and determined in 2021 FY
  • The 5 adjudications commenced in 2020 FY and determined in 2021 FY
  • Some other adjudications from that were terminated.

Do parties need a lawyer?

Parties can directly participate in Adjudications without retaining a lawyer. However, we advise the parties to retain a lawyer particularly when higher claim sums are involved. A lawyer can help the parties understand the adjudication process, get an accurate estimation of its rights, determine the right strategy, and to generally ensure a faster and more favorable disposition of adjudications. 

Conclusion:

Introduced by amendments to the Construction Act, R.S.O. 1990, c. C.30, adjudication is a speedy method to resolve interim disputes that arise on construction projects. Ontario is the first jurisdiction with a prompt payment and adjudication regime layered on top of an existing construction lien regime. Based on how cost effective this process appears to be, we expect that more adjudications will be filed in 2022, and that number will continue to rise in years to come. 

Contact Sam Gebrael at Zayouna Law (sgebrael@zaylaw.com) if you or your company need help with construction disputes or if you wish to pursue a claim in respect of a construction project. We usually charge an hourly fee for our services but, upon request, we can also provide you with alternative fee arrangements such as flat fee or block billing.

Samir (Sam) Gebrael

Sam is a commercial litigator with a multi-jurisdictional background (dual-qualified in New York and Ontario). Sam gained extensive “BigLaw” experience in dealing with commercial, construction, insurance and real-estate matters before moving to Zayouna to head the Commercial Litigation Department. Outside of work, Sam is committed to fostering diversity in the legal field. He is the founder and Co-President of Global Lawyers of Canada – Ontario Chapter. 

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