OGCA speaks out about Hydro One Networks “Proper Invoice” problem

proper invoice construction act

Ontario Construction News staff writer

The Ontario General Contractors Association (OGCA) says the new Construction Act continues to create challenges for contractors in regards to the process for submitting a Proper Invoice, specifically with Hydro One Networks Inc.’s standard contract language.

“The OGCA continues to receive questions and concerns from contractors, subtrades and owners in regards to the proper process for filing a Proper Invoice as outlined under the new Construction Act,” the association reported in its newsletter on Sept. 15.

“Recently, we received information in regards to a major Ontario owner creating a process that required them to approve the submission prior to it being accepted. In our opinion, this contravenes the Act, and we have written to that owner requesting that they change their process.”

In a Sept. 1 letter to Hydro One Networks Inc. the association made clear the problems with the owner’s policies.

“We have received some concerns by bidders, including subtrades, regarding the language contained in Article 12 of this standard form EPC contract prepared by Hydro One Networks,” OGCA president Giovanni Cautillo said in the letter. “In particular, the concern is that the section violates the Construction Act.

“Article 12 contemplates milestone payments following the submission of Proper Invoices. By section 12.2, a contractor is prevented from issuing a Proper Invoice unless all requirements to meet the applicable milestone are met.

“Those requirements to meet a milestone include a “Milestone Achievement Application” prepared by the contractor for the owner’s review, verification and acknowledgment (section 12.4). By section 12.6, the owner obligates itself to commence a review of the work no later than 10 work days after receipt of the contractor’s Milestone Achievement Application. There is no time limit prescribed, within which that owner review must be completed.

“If the owner believes the contractor has completed a milestone, the owner is obliged to issue an “Acknowledgement of Milestone Achievement” (section 12.7). The issuance of an Acknowledgement of Milestone Achievement is expressly made a precondition to meeting the requirements of a milestone (section 12.8).

“In short, these provisions provide that the contractor’s ability to issue a Proper Invoice is conditional upon the achievement of a milestone, which itself is conditional upon the owner’s review and approval of a milestone application.

“We would respectfully direct you to section 6.3 (2) of the Construction Act: “A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of a payment certifier or on the owner’s prior approval is of no force or effect.” …

“The provisions cited above would appear to clearly violate this prohibition in the Construction Act. Simply put, the giving of a proper invoice under the Act cannot legally be conditioned upon the owner’s prior approval.

“We recognize that there may be perfectly valid reasons internal to Hydro which justify this review and acknowledgement that a milestone payment application is valid and should be paid. The problem lies in linking this internal review to the proper invoice. By doing so in the manner set out in the present contract form, a contractor is effectively prevented from issuing any proper invoice at all if Hydro refuses to issue its Acknowledgement of Milestone Achievement, and is thereby prevented, among other things, from any recourse to the adjudication regime prescribed by the Act to decide any disputes concerning whether or not a milestone has in fact been met and should be paid. It is this mischief which section 6.3 (2) was intended to avoid.

“We do not believe that this was done intentionally as the entire industry is learning to adapt to the complexities of the new Act. In our view, there is a simple fix which can bring Hydro One Networks’ process in line with the law: modify the contract to provide that the Milestone Achievement Application and the Acknowledgement of Milestone Achievement are for the internal purposes of Hydro One Networks only, and shall expressly not be construed as any condition of a Proper Invoice.

“We believe making this change, or such alternative one that avoids the contravention of section 6.3 (2), is essential to avoiding unnecessary conflict and the possibility of judicial reprobation going forward,” Cautillo wrote in his letter.


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