Prompt payment and adjudication

Late payment is the most common complaint in construction. Owners take weeks to certify, general contractors wait to be paid before paying their subcontractors, and the subcontractors at the bottom of the chain end up financing the project. Payment delays ripple outward into insolvencies, liens and disputes that cost everyone more than the money at stake. Legislatures in both countries have responded with prompt payment laws that set firm deadlines for paying invoices and, in some places, fast processes for resolving payment disputes. This lesson explains how those laws work and how they interact with contract clauses that make payment depend on being paid.

The problem prompt payment laws solve

Without statutory rules, payment timing is set by contract, and the contracts are written by the party with more bargaining power. A general contractor may promise to pay a subcontractor only after the owner pays it, and the owner may take sixty or ninety days. A dispute over one change order can be used to hold back an entire monthly payment. Prompt payment laws respond in three ways: they set maximum payment periods; they require the payer to give written reasons, within a short time, for withholding any amount; and they impose interest on late payments. Some add a fast-track dispute process.

How Canadian prompt payment works

Ontario was the first province to adopt a full prompt payment and adjudication regime, in force since October 1, 2019, and the model has been followed in other jurisdictions with variations. The core sequence under Ontario's Construction Act is:

• The contractor gives the owner a proper invoice, at least monthly unless the contract provides otherwise. A proper invoice contains the information the Act requires: the contractor's name and address, the period covered, the work, the amount payable and so on.
• The owner must pay within 28 days after receiving the proper invoice, unless it gives a notice of non-payment, in the prescribed form, within 14 days, stating the amount not being paid and the reasons. From January 1, 2026, an invoice is deemed proper unless the owner gives written notice of a deficiency within 7 days.
• The contractor must pay each subcontractor within 7 days after receiving payment from the owner, for the subcontractor's share. If the owner did not pay the contractor in full, the contractor must still pay the subcontractor unless it gives its own notice of non-payment and undertakes to refer the matter to adjudication.
• Late payments carry interest at the rate set under the Act or the contract, whichever is higher.

Adjudication backs up these deadlines. A party to a contract or subcontract can refer a payment dispute to an adjudicator chosen from a roster kept by the Ontario Dispute Adjudication for Construction Contracts (ODACC). The process is fast: the adjudicator generally decides within 30 days after receiving the documents, and the paying party must pay within 10 days after the determination. The determination is binding on an interim basis, meaning it must be paid even if the losing party later takes the matter to court or arbitration. From 2026, regulations widen the disputes that can be adjudicated and adjudication may be started up to 90 days after the contract is completed, abandoned or terminated.

Prompt payment across Canada

Prompt payment is spreading, but unevenly. As of the time of writing (2026):

The federal Act applies to construction contracts with the federal government and their subcontracts. It sets payment deadlines like Ontario's and provides adjudication through the Office of the Federal Construction Adjudicator. Provincial regimes differ in their details, such as when invoices are deemed delivered, how adjudicators are appointed and which disputes are covered, so a contractor working in several provinces needs a summary for each.

Pay-when-paid and pay-if-paid clauses

Subcontracts often link payment to the general contractor being paid. There are two kinds of clause.

• A pay-when-paid clause is about timing: the general contractor will pay within a reasonable time after it is paid, or within so many days after it is paid. If the owner never pays, the general contractor must still pay within a reasonable time.
• A pay-if-paid clause shifts the risk of the owner's non-payment: payment by the owner is a condition precedent to the general contractor's obligation to pay. If the owner never pays, the subcontractor may never be paid.

Canadian courts have enforced clear pay-if-paid clauses in some cases but read ambiguous ones as pay-when-paid. Prompt payment statutes now largely override these clauses where they apply. In Ontario, for example, the contractor must pay its subcontractor within 7 days after it receives payment, and if it has not been paid in full it can withhold only by giving a notice of non-payment and undertaking to refer the dispute to adjudication. A contract clause that tries to avoid these rules is of no effect.

Adjudication in practice

For a construction manager, adjudication changes the economics of small and medium payment disputes. A subcontractor owed $90,000 for a change order may never have sued; it can now start an adjudication by serving a notice, receive a determination within weeks, and be paid within days after that. Preparation matters: an adjudicator decides mainly on documents, so contemporaneous records, signed change orders, daily reports and correspondence carry the case. Adjudication also has limits. It is interim: either party can later take the dispute to court or arbitration. It suits payment and valuation disputes better than complex delay claims, and the short timelines are hard on a party that has not kept organized records.

Running a compliant payment system

Prompt payment laws reward companies that run disciplined payment systems and punish those that do not. A general contractor sits in the middle of the chain: it is a payee to the owner and a payer to its subcontractors, so it must meet deadlines in both directions. A practical system has several parts.

• An invoice calendar: for every contract and subcontract, the invoice date, the notice deadlines and the payment deadlines, generated automatically when an invoice is received or sent.
• An intake checklist that confirms each invoice received contains what the statute and contract require, and triggers any deficiency notice within the short period allowed.
• A dispute log that records each withheld amount, the reason, the notice sent and its date, so that undisputed money is paid on time.
• Matching rules that link owner payments to subcontractor payments, so that money received for a subcontractor's work is passed on within the statutory period.
• Interest and penalty tracking, so that late payments are identified and costed rather than discovered later in a claim.

Owners need similar systems: a single point of receipt for invoices, a clear chain of approval, and authority for the person who signs non-payment notices. Many disputes under prompt payment statutes arise not from genuine disagreement about money but from invoices lost in an inbox, approvals waiting on someone on vacation, and notices sent a day late.

Preparing for a payment dispute

Whatever forum is available, a payment dispute is won on the paper trail: the contract and any amendments, each invoice and the date it was delivered, any notices given and received, the certified amounts, the change orders and their status, and correspondence about the disputed items. Organize these chronologically, with a short summary of the amounts claimed, paid and disputed. A clear, short submission backed by documents persuades adjudicators, mediators and judges far more than a long narrative.

Prompt payment rules also change the commercial conversation. A subcontractor that knows its rights, and calmly cites the statute and its interest provisions, usually gets paid faster than one that simply complains. A general contractor that pays on time builds a reputation that attracts the best subcontractors and the sharpest prices on the next bid.