On October 1, 2020, Ontario Dispute Adjudication for Construction Contracts (“ODACC”) released its first annual report (the “Report”). The Report provides key statistics on the adjudications conducted in ODACC’s first year and demographics on the adjudicator roster. It also provides a summary of the services available through ODACC’s custom online portal, as well as an overview of the adjudication process.
The Report mirrors our firm’s experience: adjudication is in its early stages, has not been widely adopted by the industry at this time, and like all construction disputes, adjudicated disputes are frequently settled before a formal determination. What follows is a summary of the Report and our firm’s observations on adjudication over its first year.
Overview of the Cases
At the time of the Report, seven adjudications remained open.
The total number of adjudications in the first year averaged out to less than three notices per month. For now, it appears most construction disputes continue to be resolved outside of a formal dispute resolution process, or in the courts. Adjudication volume is expected to increase exponentially as more parties become familiar with the process and an increasing number of projects are governed by construction contracts, including procurement processes, post - October 2019.
As commercial, public, and infrastructure projects often have lengthy procurement processes, many major projects in Ontario are still not subject to adjudication due to the Construction Act’s transition provisions. Even if a contract was signed after October 1, 2019, if the procurement process began prior to that date, subsection 87.3 (4)(2) of the Construction Act states that the adjudication provisions do not apply.
Therefore, it should not come as a surprise that residential projects are more frequently adjudicated as compared to commercial projects. Residential projects are less likely to have procurement processes lasting many months prior to the signing of a contract. Determining the threshold for adjudication eligibility is relatively straightforward as long as the contract is signed after October 1, 2019.
Adjudication Determination and Amounts Paid
Of the 32 notices of adjudication in the Report, only three resulted in a determination by the adjudicator.
All three were in the residential sector and none centered on prompt payment or payment of holdback. Two of the three matters were disputes over the valuation of services or materials provided under the subject contracts and one dispute focused on payment under the contract.
The total amount ordered to be paid under all three residential adjudications was $35,459.40, an average of $11,819.80 per dispute. The average amount claimed in the residential sector was $22,148.87. It would appear that there is an average recovery of 53% of the amounts claimed. However, one important caveat is that no “median” amount was provided by ODACC. Without knowing the exact numbers in each case, it is possible these figures are skewed by a single matter where recovery was a large sum. It is important to treat these early numbers with a high degree of caution.
No commercial, public, or infrastructure disputes were determined by an adjudicator. As expected, the amounts in dispute in these non-residential projects were far higher: the average claim amount was for $361,349.37. Once again, no median amount was provided in the Report. Given the low number of commercial disputes, and the fact that none resulted in a determination, the lack of a reported median amount makes it difficult to detect whether this average has been skewed by an outlier case.
Termination of Adjudication and Settlement
Most adjudications were terminated voluntarily by the parties to the dispute. There were 21 terminated adjudications in ODACC’s first fiscal year: 14 were settled, three reached the determination stage where payment was ordered, three were terminated because the date of the construction contract pre-dated October 1, 2019, and one was terminated for an unknown reason.
The predominance of settlement reflects our firm’s experience in traditional litigation: most disputes are settled before heading to a hearing. The primary difference is that the short timelines of adjudications lead to shortened timelines for achieving a settlement. This reality underscores the usefulness of adjudications as leverage for early settlement discussions. As long as adjudication is applicable to a project, and a claimant is prepared to commit to the process, the strict deadlines may encourage parties to resolve disputes faster than they might otherwise in traditional litigation.
The balance of the Report covers the demographics of adjudicators.
To be qualified, the Report notes that those interested in becoming adjudicators must attend a two-day program as a prerequisite for applying to ODACC for certification. As part of the certification process, candidates must answer a series of evaluation questions and, among other things, draft a sample determination for a case. At a minimum, a candidate must have at least 10 years of relevant working experience in the construction industry.
Flat rate fees paid to the selected adjudicator are provided in the Report and range from $800.00 to $3,000.00, depending on the adjudication process selected. For large-quantum or more complex disputes, adjudicator hourly fees can range from $250.00 to $750.00, but the majority is somewhere between $250.00 and $500.00 per hour.
At the time of the Report, ODACC’s roster was made up of 65 adjudicators, some of which are licensed in more than one profession: 28 engineers, 26 project managers, 22 lawyers, 10 quantity surveyors, 9 arbitrators, 2 architects, and 1 accountant. These statistics raise interesting questions about why certain professions appear more likely to either apply or be certified as adjudicators. Further analysis may consider how the professional background of adjudicators impact decision making and the perception of claimants in selecting an adjudicator.
Overall, the Report provides an important window into adjudication’s early adoption across Ontario. As contractors, trades, and owners get more familiar with adjudication, the uptake can be expected to accelerate in coming years. With the current economic uncertainty and disputes within the construction industry generated as a result of COVID-19 impacts, adjudication may start playing a significant role in resolution much sooner than we anticipate.
The decisions from adjudications are not public record and little guidance is expected from ODACC on the factors leading claimants to success. For now, individuals and organizations across the construction industry need to know whether a particular project is subject to adjudication, know their obligations under the Construction Act, and prepare to respond to adjudications in a short timeframe should the situation arise.