Prompt Payment Rules in Ontario Construction Contracts

Before Ontario’s Construction Act, 2019 introduced prompt payment, payment terms on construction projects were largely left to whatever the contract said — and contracts often gave owners and general contractors considerable discretion over when to pay, sometimes stretching out timelines well beyond what subcontractors and suppliers further down the chain could comfortably absorb. Slow payment at the top of the chain tended to cascade into even slower payment further down, since each party was often waiting to be paid before paying the parties below them.

Prompt payment addresses this by imposing mandatory, legislated deadlines for paying a proper invoice, rather than leaving payment timing entirely up to negotiation. The goal is to keep cash moving through the construction pyramid at a predictable pace, reducing the cash-flow strain that smaller subcontractors and suppliers often absorbed disproportionately under the old, more flexible system.

It’s worth being clear about what prompt payment changes and what it doesn’t. It doesn’t change how much is owed under a contract, and it doesn’t resolve genuine disputes about the quality or completeness of work — what it changes is the process and timing around paying (or formally disputing) an invoice once it’s submitted, so that disagreements get surfaced quickly rather than simply being left unresolved through delay.

The regime was introduced alongside the broader modernization of Ontario’s construction legislation, moving away from the former Construction Lien Act’s framework, which focused mainly on security through liens and holdback without directly addressing how quickly payment itself should move. Prompt payment and the adjudication process that accompanies it fill that gap, targeting the payment process itself rather than only the security available once payment has already failed.

The prompt payment clock doesn’t start running from just any bill — it starts from a proper invoice, a term with a specific meaning under the Construction Act. A proper invoice generally needs to include details such as the contractor’s contact and billing information, a description of the services or materials provided, the amount claimed and how it was calculated, and the period the invoice covers, along with any other requirements the contract itself adds.

Getting invoicing right matters more under prompt payment than it may have under older contract practices, because an invoice that’s missing required information may not actually qualify as a proper invoice — which means it may not start the statutory payment clock at all, even if it looks reasonable on its face.

Contractors submitting invoices, and owners receiving them, both benefit from treating invoicing as more than a bookkeeping formality under this regime. Because an invoice missing required information may not trigger the statutory clock, careful, consistent invoicing practices can matter as much to a contractor’s cash flow as the underlying payment terms themselves.

Once a proper invoice is delivered, an owner generally has 28 days to either pay it in full or issue a notice of non-payment disputing some or all of it. Assuming payment is made or deemed accepted, the obligation then flows downward: the contractor generally has a shorter window — often seven days — after being paid to pass along the proportionate share owed to its subcontractors, and subcontractors have their own similarly short deadlines to pay the parties below them in turn.

This cascading structure is the core mechanic of prompt payment. Rather than each party negotiating its own payment terms independently, the statute creates a connected chain of deadlines running from the owner all the way down to the smallest supplier, so that money received at the top is expected to keep moving rather than stalling at any single level.

These timelines are generally treated as minimums that a contract can’t push further out in the owner’s or contractor’s favour, even with the other party’s agreement. A contract can set shorter payment periods than the statutory ones, but it generally can’t extend payment beyond what the Construction Act allows, since that would undercut the point of imposing a mandatory floor in the first place.

If an owner, contractor, or subcontractor disputes all or part of a proper invoice, the Construction Act generally requires a formal notice of non-payment within a specific deadline, rather than simply withholding payment without explanation. The notice has to identify the amount being disputed and the reasons for the dispute, giving the invoicing party a clear basis to respond, negotiate, or escalate the disagreement.

This requirement is meant to prevent payment from being withheld informally or indefinitely. A party that wants to dispute an invoice has to put its reasons on the record within the statutory window, rather than relying on silence or a vague refusal to pay, which the prompt payment regime doesn’t generally treat as a valid response.

A notice of non-payment disputing only part of an invoice doesn’t excuse paying the undisputed portion. Where only a specific line item or amount is genuinely in question, the Construction Act generally expects the undisputed balance to still be paid within the usual timeline, with the dispute narrowed to the specific amount actually being contested.

The combined effect of proper invoicing requirements, fixed payment deadlines, and required notices of non-payment is meant to replace open-ended payment discretion with a predictable rhythm: invoice, pay or dispute within a set window, and pass funds down the chain within a further set window. Each level of the contract structure is on a clock, rather than waiting indefinitely on the party above it.

Prompt payment doesn’t operate in isolation — it sits alongside holdback requirements (an owner pays a proper invoice promptly, minus the required 10% holdback) and lien rights, which remain available as a further layer of security if payment still doesn’t materialize. Together, these form one connected payment and security framework rather than separate, unrelated rules.

For owners and general contractors, this means payment administration on an active project now has real statutory stakes attached to it — tracking when a proper invoice was received, when the 28-day period expires, and whether a notice of non-payment needs to go out, has become a necessary part of running a project rather than an informal, after-the-fact exercise.

If a proper invoice goes unpaid and no valid notice of non-payment is issued within the deadline, the party owed money generally has several options. These can include suspending further work in defined circumstances, registering a construction lien if the relevant deadlines haven’t passed, or referring the dispute to the Construction Act’s interim adjudication process, which is specifically designed to resolve prompt payment disputes faster than conventional litigation.

Prompt payment and adjudication were introduced together for a reason — the strict payment deadlines are far more meaningful when there’s also a fast way to resolve a disagreement about whether an invoice should have been paid. For a broader look at construction contract terms generally, see our article on key construction contract terms, or the construction insights hub. This is general information about how Ontario’s prompt payment rules work, not a calculation of deadlines for a specific invoice or contract.

Smaller homeowner-driven projects can raise their own practical wrinkles under this framework, since a homeowner acting as owner may be less familiar with proper invoice requirements and statutory deadlines than a commercial owner with dedicated project administration. Our article on homeowner-contractor disputes touches on some of these practical dynamics in more detail.