On November 2, 2021, Ontario Dispute Adjudication for Construction Contracts (“ODACC”) released its second annual report (the “2021 Report”). ODACC was appointed by the province to administer adjudications under the Construction Act (the “Act”). Every fiscal year ODACC reports statistics about the adjudications initiated, terminated, determined, and ongoing. It also reports on the adjudicator roster’s demographics and coverage available across Ontario.

While the adjudication decisions themselves are not reported, the statistics provide insights for industry stakeholders, adjudicators, and construction lawyers to better understand adjudication’s current under-utilization and its opportunity for growth in the future.

This article highlights the 2021 Report’s statistics. It also compares this year’s statistics to the previous year, and briefly comments on differences and emerging trends.

Overview of Adjudications

Adjudication applies to prime contracts entered into (or with a procurement process started) on or after October 1, 2019. This means that adjudication will eventually apply to every project in Ontario, but not currently. Large infrastructure projects with long procurement pipelines may not see adjudication for years. Smaller infrastructure projects and residential projects are far more likely to have adjudication available.

ODACC’s second reporting year ended July 2021. At the time of the 2021 Report, a total of 82 notices of adjudication had been submitted in the first 22 months since the adjudication provisions of the Act came into force. As anticipated, the 2021 Report shows an uptick in the use of adjudication in its second year. More projects have adjudication available because they are governed by contracts or procurement processes post-dating October 2019. Familiarity with the adjudication process is also growing, but the overall uptake remains low.

This year, 50 notices of adjudication were submitted to ODACC (or an average of just over four notices per month). In the previous year, a total of 32 notices were submitted (or fewer than three per month). Eight adjudications remained ongoing at the time the 2021 Report was published.

As expected, notices of adjudication involving residential projects made up 19 of the 50 notices submitted this year, more than any other sector. That said, collectively, compared to the previous year, adjudications were more frequently initiated by parties to sophisticated public and commercial projects than residential: ten adjudications were commenced involving commercial projects, fifteen in the transportation and infrastructure sector, three involving public buildings, and three involving industrial projects.

Adjudication Determinations

Of the 50 adjudications commenced this year, twelve were terminated on consent of the parties and 34 determinations were rendered (including five determinations from adjudications commenced in the preceding year).

Industry sectors: Even though more adjudications were commenced involving residential projects, fewer determinations were rendered in residential disputes than in disputes involving transportation and infrastructure projects. Of the 34 determinations rendered, fourteen involved transportation and infrastructure projects, and eleven involved residential projects. Another five determinations related to commercial projects, three involved public buildings, and one involved an industrial project. For comparative purposes, the total number of adjudications and determinations issued in both years in each sector are summarized in Table 1 below.

Types of matters: Most determinations related to “the valuation of services or materials provided under the contract” and “payment under the contract including in respect of a change order” (thirteen and fourteen determinations, respectively). Two determinations involved other matters that the parties agreed to adjudicate.

More notably, this year five determinations were issued in “disputes that are the subject of a notice of non-payment under Part I.1” of the Act. No adjudications in the previous year involved notices of non-payment. This suggests an overall increase in the use of the new prompt payment regime and adjudication provisions to enforce it.

Monetary amounts: The total amount claimed in the notices of adjudication submitted to ODACC was $8,709,658.98, or an average of $174,193.18 per dispute. In the 34 disputes where determinations were rendered, the total amount ordered to be paid was $908,122.83, an average of $26,709.50 per determination. The amounts claimed and ultimately ordered to be paid are summarized in Table 2 below.

Based on these numbers, the average recovery appears to be 15% of the amount claimed. However, without knowing the actual numbers in each case, it is possible that the figures are skewed by one or more outlier matters where negligible sums were recovered. The numbers in ODACC’s first report were problematic for the same reason. The numbers should therefore be treated with caution.

The amounts claimed and recovered are relatively low in general. At the time of ODACC’s first report, the numbers were consistent with the fact that only three determinations had been rendered, all involving residential (presumably smaller) projects. This year, despite more claims across other industry sectors, the amounts ordered to be paid on a “per claim” basis are still relatively modest: $29,724.09 for commercial, $43,736.00 for transportation and infrastructure, and $13,927.34 for public building projects. In the determination of the single industrial project dispute, no monetary award was ordered.

The relatively low monetary value of both claims and awards indicates that parties are choosing to adjudicate disputes as they arise in the middle or early stages of a project, consistent with the spirit and purpose of the prompt payment and adjudication reforms.

The wide delta between amounts claimed and ordered to be paid suggests that the strongest adjudication claims may be terminated and resolved outside of the adjudication process, while the disputes with evidentiary problems may be more likely to proceed to determinations. Unlike court or arbitration, adjudications carry relatively little risk of adverse costs awards upon dismissal unless they are “frivolous, vexatious, an abuse of process or other than in good faith” contrary to section 13.17 of the Act. This makes adjudications relatively low risk for claimants.

Given the relatively limited opportunity to file evidence in adjudications, claimants may be finding it challenging to support claims for change orders or service valuations where documentation is poor or non-existent. As stakeholders become more familiar with the adjudication process, this dynamic may change. Should projects increasingly adopt a culture of prompt payment and adjudication to resolve disputes, contractors will quickly learn how to better support (and win) adjudications.

Settlements and terminations: Overall, fewer adjudications were terminated this year than in the previous year. In ODACC’s first year, 21 of the 32 adjudications were terminated; this year, twelve adjudications were terminated out of the 50 commenced. Eight of the twelve terminated adjudications were settled by the parties. The 2021 Report also noted three of the terminated adjudications were withdrawn because the contract date pre-dated October 1, 2019 (i.e., the contract turned out not to be subject to the new adjudication regime). This serves as a reminder to parties and counsel to check their contract dates so that adjudications are not commenced by mistake. 

Geography: The 2021 Report shows that adjudication is being used for construction disputes across the province. While almost one third of the completed adjudications involved Toronto projects, determinations were issued in disputes in northern regions, including one in each Kenora, Algoma and Rainy River, three in the east region including Ottawa, four in the southwestern region, as well as others across the GTA and Golden Horseshoe.

Adjudicators

Roster: At the time of the 2021 Report, ODACC’s roster included 96 adjudicators, which means 31 adjudicators were added this year. The majority of the roster is made up of construction professionals: engineers, project managers, and quantity surveyors. Those in the dispute resolution industry and “professional services” (lawyers, accountants, mediators, and arbitrators) are in the minority. Seven of the adjudicators are bilingual and can conduct adjudications in French.  The ODACC statistics do not disclose how frequently adjudicators of various backgrounds are being selected, or how determinations vary across those groups.

Fees: During the 2021 fiscal year, ODACC received $223,335 (plus HST) in adjudication fees. ODACC kept an administrative fee of $92,309 and paid adjudicators $131,026. Flat rate fees paid to the selected adjudicator are provided 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, with the majority between $250.00 and $500.00 per hour.

Timeline for decisions: The 2021 Report suggests that adjudication is more or less meeting its goal of providing an expeditious alternative to litigation. Most matters (76 per cent) were decided within the 30 day timeline. In all cases that were not decided within the timeline, the parties consented to the later deadline. The speed adjudication offers relative to other dispute resolution mechanisms continues to be a core part of its value proposition.

Method of hearing: Under ODACC’s system, parties may recommend to the adjudicator one of four Pre-Designed Adjudication Processes or a custom adjudication process. Most adjudications are held in writing, and ODACC has been conducting any oral components by videoconference during the COVID-19 pandemic. Given the efficiencies inherent in videoconferencing, that practice may very well continue as Ontario resumes in-person business.

Impact of COVID-19

The impact of the COVID-19 pandemic on the use of adjudication is uncertain due to the limited data and information about the circumstances giving rise to claims. Despite the many good reasons to adjudicate, including as an option to avoid pandemic-driven court backlogs, the industry may be more focused on navigating the pandemic rather than experimenting with adjudication as a new dispute resolution mechanism. Perhaps there will be a greater interest in adjudication after the supply chain issues wrought by the pandemic stabilize. That said, it is difficult to tell whether disputes are being diverted from the court to adjudication without province-wide statistics on the number of lien claims commenced in the Superior Court in the comparable time periods.

Looking Forward

As expected, ODACC’s first two annual reports suggest that as contracts for projects are increasingly governed by the new regime, the uptake in adjudication will continue to increase. In the residential sector where adjudication is more universally available, lack of awareness may be a factor preventing more contractors and owners from pursuing it. For commercial, public, and industrial projects where adjudication is an option, it may be that a combination of industry conservatism, lack of awareness, inexperience, and the absence of an “adjudication culture” have suppressed interest in ODACC adjudications. Further investigation is required to understand why adjudication has not been more frequently utilized to date.

For now, it continues to be important for lawyers and industry stakeholders alike to understand the adjudication process, including whether their project is subject to adjudication, as well as the parties’ rights and obligations under the Act. Lessons learned from the Ontario experience may be applied to construction law reforms as they continue to roll out across Canada.

This article was originally published by the Construction Law Letter (LexisNexis Canada Inc.)