Why the Adjudication Process Might Be Right For You     

In 2018, the old Construction Lien Act was substantially amended and renamed the Construction Act, R.S.O. 1990, c. C.30. (the “Act”). On October 1, 2019, one of the more significant changes was implemented – adjudication process. Over the past few years, the adoption of the adjudication process has been slow, but it is a helpful process and its use will increase as the construction industry becomes more familiar and comfortable with the process.

The adjudication process is an interim dispute resolution process that is meant to assist the parties to a construction contract to resolve construction disputes during the completion of the project with the assistance of a qualified adjudicator. The adjudication process is meant to be a quick way of resolving disputes as they arise while construction is ongoing. By default, the adjudication process may only address a single matter at a time, however, the parties may agree to resolve multiple matters. The adjudication process is meant to be used during the completion of the construction project and not upon its completion. However, the parties may also agree to use this procedure even after the contract is completed. It is also possible to have a parallel arbitration or a court action unless the court action or arbitration has been finally determined.

On July 18, 2019, the Ministry of the Attorney General designated the Ontario Dispute Adjudication for Construction Contracts (“ODACC”) as the Authorizing Nominating Authority, whose purpose is to administer the adjudication process provided for in the Act, including but not limited to, the developing and overseeing of the training, qualifying of the adjudicators, maintaining a public registry of the adjudicators, and setting fees.

REASONS TO CONSIDER THE ADJUDICATION PROCESS IN CONSTRUCTION DISPUTES:

The following are some of the reasons for the reader to consider when thinking about whether to use the adjudication process as well as when the adjudication process is mandatory:

• Since the judgment has to be paid in a short period of time, the determination may be used as a way of collecting some funds from the opposing party while the construction project is ongoing;
• It can be used where a certain expertise is required to resolve a dispute;
• It can be used to support the court action or the arbitration proceeding;
• It is relatively inexpensive as compared to Court or Arbitration;
• It is quick;
• It is mandatory in certain disputes related to the notice of non-payment;
• No oral hearing is required;
• This process has been used successfully for more than 20 years in the UK; and
• Most importantly, it can be used by the contractors and subcontractors as a tool to stop working on the project when not being paid the judgment amount without being found in breach of the contract or subcontract.

TYPES OF CONSTRUCTION DISPUTES THAT MAY BE RESOLVED THROUGH ADJUDICATION:

The adjudication process provided for in the Act is available for all construction contracts where both the procurement process and the contract are entered into on or after October 1, 2019. The following types of disputes may be resolved through the adjudication process:

1. The valuation of services or materials provided under the contract;
2. Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order;
3. Disputes that are the subject of a notice of non-payment;
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; and
7. Any other matter that the parties to the adjudication agree to, or that may be prescribed.

It is important to note that while the parties to the contract have the option of using the adjudication process for most of the disputes mentioned above, the party to the contract has an obligation to use the adjudication process for certain disputes related to the notice of non-payment.

HOW TO START THE ADJUDICATION PROCESS:

To commence adjudication, a party interested in the adjudication (the “moving party”) must first register on ODACC’s portal. Once on the portal, the moving party must select the ‘+New Case’ option to create a new adjudication (i.e. new case). The moving party must then prepare a notice of adjudication. The notice of adjudication should be prepared carefully as it is the moving party’s chance to provide a summary of the issue to be adjudicated. In the notice of adjudication, the moving party must select whether it is the claimant or the claimant’s representative (i.e. law firm) who will be representing the moving party in the adjudication process. The moving party must then select whether it is a contractor or not. Thereafter, the moving party has the option of selecting the applicable industry from the following categories: (a) commercial, (b) industrial, (c) public buildings, (d) residential, and (e) transportation and infrastructure. The moving party must also provide the date of the construction contract. The moving party must then provide the names and addresses of the parties involved in the adjudication, and the names and addresses of the parties’ representatives, if applicable.

The last step in creating a notice of adjudication is to provide the case information. In this section, the moving party must provide (a) the case name, (b) the dispute amount, (c) brief description of the dispute (including the details respecting how and when it arose), names of owners, officers, and directors of the company (if any), names of potential witnesses, (d) nature of the redress sought (i.e. what the moving party wanted the adjudicator to order), (e) a proposed adjudicator, and (f) a suggested ODACC adjudication process. The moving party has a limit of approximately 250 words when providing a brief description of the dispute.

THE 4 PRE-DESIGNED ADJUDICATION PROCESSES IN CONSTRUCTION LAW:

Ultimately, the adjudicator will be the one who will determine the process that will be used for the adjudication. Nonetheless, the parties have the option of suggesting a preferred process to the adjudicator. The parties have the option of selecting one of the following pre-designed adjudication processes.

The first pre-designed adjudication process is for adjudication in writing. The parties’ arguments and photographs will be limited to only two (2) pages per party (excluding a copy of the contract and a copy of the disputed invoices) and the determination will be approximately one (1) to two (2) pages long.

The second pre-designed adjudication process is for the adjudication in writing as well. In this case, the parties’ arguments and photographs will be increased to five (5) pages per party (excluding a copy of the contract and a copy of the disputed invoices).

The third pre-designed adjudication process is also for the adjudication in writing. The parties’ arguments and photographs will be increased to five (5) pages per party (excluding a copy of the contract and a copy of the disputed invoices) and additionally, each party may submit supplementary documents (including witness statements) to a maximum of ten (10) pages. The determination will be approximately five pages (5) long.

The fourth pre-designed adjudication process provides each party with half an hour to make an oral presentation, which can be conducted by videoconference or teleconference (not in person). The parties’ arguments and photographs will be increased to ten (10) pages per party (excluding a copy of the contract and a copy of the disputed invoices) and additionally, each party may submit supplementary documents (including witness statements) to a maximum of twenty-five (25) pages (in total). The determination will be approximately five (5) pages long as in the previous option.

HOW TO CHOOSE YOUR ADJUTICATOR FOR YOUR CONSTRUCTION DISPUTE:

ODACC keeps a registry of the adjudicators on its online portal and the parties may only use the adjudicators listed in the registry. The adjudicators may be selected based on different criteria such as their profession, years of experience, fees, language, geographical area, etc. If the parties can not agree on an adjudicator, then ODACC will appoint one.

ODACC is also required to issue annual reports, which can be found on ODACC’s website. ODACC’s 2020 and 2021 annual reports show that most of the adjudicators are engineers, project managers, lawyers, quantity surveyors, arbitrators, mediators, architects, and accountants. When selecting an adjudicator, the parties should determine what type of skills, experience, and education the adjudicator should have to resolve the dispute. For instance, if the dispute deals with the valuation of services, then perhaps it is best to use an engineer or a quantity surveyor who would be best suited to value the percentage of the completed construction work. If the adjudicator does not consent to conduct the adjudication within four (4) days after the notice of adjudication is provided to him or her, then the moving party will have to request ODACC to appoint an adjudicator and ODACC will have seven (7) days to appoint one.

The adjudicator has very broad powers, including, but not limited to, the ability to issue directions regarding the conduct of the adjudication, taking the initiative in ascertaining the relevant facts and law, conducting site inspections, drawing inferences based on the conduct of the parties involved, obtaining the assistance of another professional (i.e. accountant, building contractor, etc.) and making the determination.

ADJUDICATOR FEES FOR CONSTRUCTION DISPUTES:

The parties should also agree on the adjudication fees. If the parties cannot agree on fees, the amount will be determined by ODACC. With respect to the four pre-designed adjudication processes, ODACC provides suggested adjudication fees for each pre-designed process (i.e. $800, $1,000, $2,000, and $3,000 plus HST).

ODACC’s adjudicators offer hourly rates of $250, $400, $500, or $750 per hour. ODACC’s fees can be found on their website. If compared to the arbitrator’s rates, the Canadian Arbitration Association’s website notes that the arbitrators’ fees similarly range from $250 to $800 per hour. ODACC offers not only hourly rates, but also flat fee rates of $800, $1,000, $2,000, and $3,000 that coincide with the amount claimed on the notice of adjudication. For instance, if the amount claimed on the notice of adjudication is worth $9,999.00 or less, then the adjudication fee will be a flat rate of $800. The fees generally will be split equally between the parties involved unless the adjudicator determines that one party does not act in good faith, acts frivolously, vexatiously, etc.

THE ADJUDICATION PROCESS IN CONSTRUCTION LAW:

After the adjudicator agrees or is appointed to conduct the adjudication, the moving party will have 5 days to provide its summary and all supporting documents to the adjudicator and to the opposing party. After the moving party creates a notice of adjudication, the adjudicator will provide the opposing party with time to provide their response to the moving party and to the adjudicator.

The adjudicator will then conduct a site visit or a hearing (oral or in writing), depending on the agreed adjudication process. The adjudicator will have thirty (30) days from the day the moving party submits its documents to issue a determination. This deadline may be extended before its expiry on consent of the parties. Once the determination is made, a certified copy of the determination will be provided to the parties within seven (7) days following the making of the determination.

The losing party will be required to pay the judgment within ten (10) days after the determination is communicated to the parties. If the losing party does not pay, then interest will start to accrue. Moreover, a contractor or a subcontractor can suspend all work on the project until it is paid the judgment amount plus interest and all costs incurred as a result of the work being suspended (i.e. demobilization and mobilization costs, etc.). The winning party can file the determination with the court and it will have the power of a court order.

The determination of the adjudicator can be set aside, with leave of the Divisional Court, on an application for judicial review on limited grounds only. The reason why the adjudication process is an interim process is because it is binding on the parties until the matter is determined by the court, by an arbitrator, or on consent by the parties. Both the court and the arbitrator are able to review the adjudicator’s determination of the legal issue when determining the matter. This means that the determination may be used by a party in litigation in support of its case.

CORESTONE LAW ON THE ADJUDICATION PROCESS:

When using the adjudication process, our law firm found that ODACC’s portal was user-friendly. All the documents and correspondence with the adjudicator and the opposing side can be found on the portal. The dashboard section shows all case notifications and deadlines. The forms section shows the submitted documents. The parties section lists the parties involved, their representatives, and their contact information. Lastly, the messages section lists all correspondence between the parties and the adjudicator.

While the adjudication process is relatively new and its usage is not as widespread as the legislators hoped that it would be, it has been used more frequently in 2021 as compared with 2020. In its 2021 annual report, ODACC noted that a total of fifty (50) notices of adjudication were issued in the 2021 fiscal year, while in the 2020 fiscal year, only thirty-two (32) notices of adjudication were issued. The number of disputes that were actually adjudicated also increased. In the 2021 fiscal year, a total of thirty-four (34) adjudications were completed, while only three (3) were completed in the 2020 fiscal year.

[1] Construction Act, R.S.O. 1990, c. C. 30, s. 13.5(4).

[2] Ibid, s. 13.5(3)

[3] Ibid, s. 13.5(5).

[4] Ibid, s. 13.3.

[5] Ibid, s. 13.5(1).

[6] Ibid, s. 6.5(5) and 6.6(6).

[7] Ibid, s. 13.7.

[8] Ibid, s. 13.9(1).

[9] https://odacc.ca/en/adjudicator-registry/

[10] https://odacc.ca/en/annual-report/

[11] Supra note 1, s. 13.9 (4) and (5)

[12] Ibid, s. 13.12.

[13] Ibid, s. 13.10(2).

[14] https://odacc.ca/en/claimants/fees/

[15] Supra note 1, s. 13.10(3) and s. 13.17.

[16] Ibid, s. 13.11.

[17] O. Reg. 306/18, s. 17.

[18] Supra note 1, s. 13.13(1).

[19] Ibid, s. 13.13(2).

[20] Supra note 17, s. 22(1)(b).

[21] Supra note 1, s. 13.19(2).

[22] Ibid, s. 13.19(2), (3), (5) and (6).

[23] Ibid, s. 13.20.

[24] Ibid, s. 13.18(1), (5).

[25] Ibid, s. 13.15(1).