In the construction world, projects rarely conclude on time. That’s no secret. Beyond the constant delays, however, another problem has historically rankled the industry: making sure everyone gets paid on time. Thin profit margins, limited cash flow and complicated contracts often prevent money from flowing down the construction pyramid — from property owners to contractors to subcontractors — at a steady clip.
In 2017, Ontario took aim at this predicament. The provincial government passed amendments to the Construction Lien Act (now called the Construction Act) that included new “prompt payment” rules. These regulations, which came into effect in October 2019, require property owners to pay a contractor’s invoice within 28 days of receiving it. The contractor, in turn, has seven days to pay its subcontractors. Sound simple? Not exactly.
“The rules create a big administrative burden,” says Jeff Scorgie, an associate at WeirFoulds LLP whose practice focuses on construction law. “There are a lot of complicating variables.” What happens for instance, if an owner contests the charges on an invoice? In that scenario, it has 14 days to issue a notice of non-payment, which outlines its objections. The contractor, for its part, still has to pay any subcontractors, unless it takes the dispute to adjudication within 35 days. To manage these deadlines is a dizzying task.
“The learning curve for this legislation is not six months, but six years,” says John Mollenhauer, the CEO of the Toronto Construction Association, an industry group that represents more than 1,800 companies and construction-related professionals. In other words, it is extremely complicated.
At WeirFoulds, Scorgie, alongside two of the firm’s partners, Krista Chaytor and Faren Bogach, needed a simple way to navigate that complexity. “We were talking one day in Krista’s office,” recalls Bogach. “I asked, ‘How can we best solve these questions?’ Jeff said we need a calculator. Krista said it should be an app.”
Ultimately, the team incorporated a new company, Pay Prompt Inc., and worked with a software developer on a web-based platform that could track construction payments in keeping with the new legislation. (The team operated outside the firm, as Bogach explains, so it could make the software more widely available throughout the construction industry, beyond the firm’s clients and contacts.)
In basic terms, here’s how the software works. Let’s say you’re an owner. (There’s a separate module for contractors.) On the home screen, you’ll see a list of options, such as “I have an invoice” and “I want to give a Notice of Non-Payment.” Once you select an option and answer a few short questions, the program calculates the date you have to pay an invoice or issue a notice. You can then view all of your deadlines on a single dashboard.
Once a beta version was ready, the trio approached Mollenhauer and his team for feedback on the software. “We loved it,” says Mollenhauer. “We liked the pragmatic way they went about it. They genuinely understand the Act.”
In October, Pay Prompt officially launched. To date, it has 50 clients that no longer have to pay a lawyer to tediously manage payments and deadlines. “Lawyers should be doing deeper work,” says Chaytor. “This is more rewarding for us and far better for our clients.”
This is a story from our Winter 2020 Issue.
Illustration by Ashley Wong. Photos courtesy of WeirFoulds LLP.