Making payment a priority

(PHOTO: © WUTWHANFOTO / ISTOCK / GETTY IMAGES PLUS / GETTY IMAGES)

The shift towards prompt payment and adjudication in the construction industry continues to expand across Canada. As of January 2024, three provinces have implemented prompt payment legislation, four more have passed legislation that is not yet in force and, most recently, federal legislation has come into effect. Prompt payment is now a market reality that owners and contractors must account for in negotiating contracts and executing projects.

ONTARIO

Ontario led the way with implementation of prompt payment legislation in 2019. Although it appears that the Ontario construction industry has adapted to these changes, the transition provisions in Ontario’s Construction Act may mean that some projects in Ontario are still working under the old legislation. Generally, with some exceptions, the prompt payment requirements of the Construction Act apply to contracts entered into on or after October 1, 2019.

Ontario’s legislation makes adjudication mandatory. The province has designated a single adjudication body to handle disputes. In its 2022 annual report, adjudication figures rose significantly from its 2021 reporting, with 121 adjudication claims commenced worth more than $33.5 million. Of those, 67 determinations were delivered, directing a total of $3.45 million to be paid. These figures suggest that Ontario’s adjudication regime is rapidly expanding and can be expected to address an even larger number of disputes in the coming years.

SASKATCHEWAN

On March 1, 2022, The Builders’ Lien (Prompt Payment) Amendment Act came into force in Saskatchewan. While the prompt payment timelines mirror Ontario and Alberta, unlike Ontario and Alberta, the act expressly states that the prompt payment and adjudication provisions do not apply to architects and engineers.

The new provisions apply to contracts entered into on or after March 1, 2022, and with respect to subcontracts made under those contracts. If a contract for an improvement was entered into before March 1, 2022, the old act will apply with respect to all contracts relating to that improvement, regardless of when a subcontract was entered into. This binary transitional provision should reduce, but may not eliminate, uncertainty associated with applying the new or old act.

ALBERTA

On August 29, 2022, Alberta’s Prompt Payment and Construction Lien Act (PPCLA) came into force. The PPCLA applies to all contracts or subcontracts entered into on or after August 29, 2022. It still unclear whether this could result in the old and new legislation applying to different contracts on the same project. The act also includes a two-year transition period for pre-existing contracts to be amended to comply.

In April 2023, Arcana received authorization to act as Alberta’s Nominating Authority, although the PPCLA allows for more than one. Despite several adjudications having been determined under the adjudication regime, there has been very little judicial consideration of the prompt payment and adjudication provisions of the PPCLA.

Only one year after coming in force, on September 28, 2023, Alberta issued a regulation that allows certain entities and projects to be exempted from the prompt payment requirements by eliminating the obligation for a contractor to provide an owner with a proper invoice every 31 days. This would allow parties to agree to a payment schedule that would otherwise violate the PPCLA prompt payment provisions.

To be exempt, the entity or project agreement must be listed in the Schedule to the Regulation and meet certain criteria, such as being directly connected to a project valuing at least $5 billion, and contributing to significant job creation and economic growth. Currently only one project is listed under the PPCLA exemption regulation.

NOVA SCOTIA

On April 12, 2019, amendments to the Nova Scotia Builders’ Lien Act received royal assent which added a prompt payment and adjudication regime, with the details to be stipulated later by regulation, and changed the name to the Builders’ Lien and Prompt Payment Act. These amendments have yet to come into force.

In 2023, the province was in consultation with the construction industry regarding the drafting of the regulations under the act, suggesting that the amended act may come into force soon.

MANITOBA

On May 30, 2023, The Prompt Payment for Construction Act received royal assent to amend Manitoba’s Builders’ Liens Act, but is not yet in force. The regulations have not yet been published. Like other provinces, Manitoba’s act will require owners to pay contractors no later than 28 days after a proper invoice is given to the owner by the contractor.

Like Saskatchewan, Manitoba’s act will not apply to architects or engineers. Like Alberta, the new act will apply to contracts or subcontracts entered into on or after the date the amendments come into force. Forthcoming regulations may impact how these changes will work in practice.

NEW BRUNSWICK

Beginning in July 2019, New Brunswick released a series of law reform notes that supported the introduction of prompt payment and adjudication legislation in two stages: the first stage being an update to the existing lien legislation, and the second being the introduction of a prompt payment and adjudication regime. As part of stage one, the Construction Remedies Act came substantially into force on November 1, 2021, with the act coming into full effect on April 1, 2022, when holdback trust account provisions came into force.

On May 9, 2023, the New Brunswick Legislature began stage two, by releasing the Construction Prompt Payment and Adjudication Act. That act received royal assent on June 16, 2023, and introduces a prompt payment and mandatory adjudication regime in the province. This act is not yet in force. It is generally modelled after Ontario’s prompt payment and adjudication regime.

QUEBEC

On June 2, 2022, Quebec assented An Act mainly to promote Quebec-sourced and responsible procurement by public bodies, to reinforce the integrity regime of enterprises and to increase the powers of the Autorité des marchés publics. The act provides a foundation for prompt payment legislation but is not yet in force.

Regulations prescribing payment timelines, adjudication procedures, and details regarding notices of non-payment have not been published. Like Alberta, Quebec may move swiftly to make prompt payment and adjudication law once associated regulations are released.

BRITISH COLUMBIA

British Columbia continues to make efforts toward implementing prompt payment. On January 24, 2022, British Columbia established an industry working group to accelerate progress on prompt payment reform. However, the province has not yet tabled any new legislation. In late 2023, B.C. began consultation with associations and groups to review legislation adopted in other provinces to determine how prompt payment legislation could work best in the province.

PEI/NEWFOUNDLAND AND LABRADOR

Prince Edward Island and Newfoundland and Labrador do not appear to have plans to develop or table prompt payment and adjudication legislation at this time.

FEDERAL LEGISLATION

The federal Prompt Payment for Construction Work Act, which applies to federal real property or federal immovables, received royal assent on June 21, 2019, and came into force on December 9, 2023.

Regulations were published in February 2023. The prompt payment provisions are similar to those in Ontario, Saskatchewan and Alberta. The Canada Dispute Adjudication for Construction Contracts (“CanDACC”) is the adjudication authority under the federal act.

The federal act will apply to all applicable contracts one year after coming into force. In other words, the act contains a one-year deferral period for contractors and owners to amend contracts and processes to comply with prompt payment and adjudication requirements. This approach will require owners and contractors on affected projects to modify existing dispute resolution and payment processes mid-project.

The act permits the federal government to exempt provinces from the federal regime if they have adopted equivalent legislation. On December 8, 2023, the federal government exempted Ontario, Alberta, and Saskatchewan on this basis.

PROMPT PAYMENT – NOT IF BUT WHEN

The policy of governments across Canada is clear – timely payment of contractors and subcontractors in the construction industry is a priority. Prompt payment is no longer just an emerging trend but will soon be an established norm. However, while significant advances have been made in the last few years, some prompt payment regimes across the country will need time to come into force or develop further.

Recent regulatory amendments in Alberta signal that governments may continue to change the legislation, or its application, to suit their needs or to address unintended consequences. As a result, the construction sector must take proactive steps to stay current on legislative updates, and the specific prompt payment and adjudication rules, in all regions where they carry on business.

Trish Morrison (Photo courtesy of Borden Ladner Gervais LLP)

Marin Leci (Photo courtesy of Borden Ladner Gervais LLP)

Patricia (Trish) Morrison, partner and national business leader, and Marin Leci, partner, are construction lawyers at Borden Ladner Gervais LLP. This article provides an overview and is not intended to be exhaustive of the subject matter contained therein. Although care has been taken to ensure accuracy, this article should not be relied upon as legal advice.