Prompt payment: The state of play across Canada
By Trish Morrison and Marin LeciConstruction Law
Legislation and regulation varies from province to province, but it is in place or in the works for much of the nation.
For almost a decade, provinces across Canada have been grappling with how to address the challenge of prompt payment in the construction industry.
Prompt payment issues generally arise in two scenarios: either the timeliness of normal course payments to contractors, subcontractors and suppliers during a project; or the payment impasse that occurs when disputes arise. Prompt payment legislation in Canada has developed to address these issues by imposing payment deadlines and introducing adjudication processes to provide potentially shorter dispute resolution timelines.
Since the introduction of prompt payment legislation in Ontario in 2019, several other provinces have tabled, enacted or are about to enact prompt payment and adjudication legislation.
In February 2022, Alberta announced that long-awaited changes to the Builders’ Lien Act will come into force on August 29, 2022. At that time, the name of the Builders’ Lien Act will change to the Prompt Payment and Construction Lien Act (PPCLA).
The PPCLA will apply to all contracts and subcontracts entered into on or after August 29, 2022. Contracts entered into prior to that date will need to be amended to comply if they are scheduled to remain in effect past August 29, 2024. The act does not bind the province and will not apply to any public works or P3 projects.
The PPCLA brings sweeping changes that will significantly impact construction projects in Alberta. In addition to creating an adjudication process to resolve disputes, PPCLA introduces a framework with tight payment and notice deadlines.
The PPCLA’s prompt payment scheme will render a “proper invoice,” as defined by the PPCLA, as valid and payable unless a series of technical requirements for objecting to payment of an invoice are followed. For example, upon the receipt of a proper invoice from a contractor, an owner must pay the contractor within 28 days unless the owner has delivered a notice of dispute to the contractor no later than 14 days after receiving the proper invoice.
In turn, a contractor must pay its subcontractors within seven days after receiving payment from the owner, unless it delivers the required notices to its subcontractors by the mandatory deadline. If a contractor fails to deliver the required notices to its subcontractors by the mandatory deadlines, a contractor will be required to pay its subcontractors in full, even if the contractor received no payment from the owner.
In essence, the PPCLA’s prompt payment framework inserts a statutory “paid when paid” clause into every construction contract, albeit with significant differences. Under a traditional paid when paid clause, the timing for payment is triggered when an owner pays the contractor. However, under the PPCLA, the paid when paid mechanism is only activated if a contractor delivers the required notice of non-payment to its subcontractors within the mandatory timeframe.
If the required notice is not delivered, the contractor is required to pay its subcontractors within the statutory timeframe, regardless of whether payment was received from the owner. Moreover, the act does not permit the use of contractual paid when paid clauses, or other payment terms, to extend payment deadlines.
The adjudication provisions are set out in both the PPCLA and the regulations. When used, adjudication will provide an expedited dispute resolution process. However, adjudication may not always be used, as the PPCLA directs that parties may not refer a dispute to adjudication if an action in court has already been commenced.
Members of the construction sector working in Alberta should begin taking steps to update contracts and administrative processes to comply with the new requirements when they come into force.
Ontario was the first province to introduce and implement prompt payment and adjudication legislation, which came into force in October 2019. Several provinces, including Alberta, have used Ontario’s Construction Act as a model for their respective legislation. Ontario’s prompt payment regime is similar to Alberta’s.
Although it appears that the Ontario construction industry has adapted to these changes, the transitionary provisions in Ontario’s Construction Act may actually mean that some major 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.
With respect to adjudication, Ontario’s legislation makes adjudication mandatory. Ontario is also the only province to generate meaningful data on adjudication. In its 2021 annual report, the Ontario Dispute Adjudication for Construction Contracts, the body that oversees adjudication processes, indicated that approximately 50 adjudication claims worth a total of $8.7 million were commenced in 2021. Of those, 34 adjudication decisions were delivered, directing a total of $908,122.83 be paid. These figures suggest Ontario’s adjudication regime is still in its infancy but that it could grow in the coming years.
On March 1, 2022, The Builders’ Lien (Prompt Payment) Amendment Act came into force in Saskatchewan. These changes are similar to Alberta and Ontario in that unless an owner disputes an invoice, it must pay it within 28 days. Contractors who do not file appropriate notices disputing payment are required to pay their subtrades within seven days of receipt of funds.
Under Saskatchewan’s new act, adjudication is similar to the adjudication provisions in Ontario. Much like in that province, the Government of Saskatchewan announced that the Saskatchewan Construction Dispute Resolution Office is the official adjudication authority under the act.
This is a marked departure from Alberta’s market-driven approach, which permits the possibility of multiple adjudication authorities that parties can select when referring a dispute to adjudication.
While Manitoba has tabled Bill 28: The Prompt Payment for Construction Act , it has not yet been passed. Bill 28 received its first reading on March 16, 2022. It could be a while before Manitoba actually implements this legislation.
As currently drafted, the bill will bind the province and will require owners to pay contractors no later than 20 days after a proper invoice is approved or is deemed to be approved. However, given that Bill 28 is not yet law, there may be revisions to its language as Manitoba receives the benefit of learning from provinces that have, or are about to implement, prompt payment and adjudication legislation.
On January 24, 2022, in an attempt to generate more progress on the introduction of prompt payment legislation, British Columbia established an industry working group to accelerate progress on potential prompt payment legislation in B.C. However, the province has not yet tabled any new legislation.
Quebec continues to lay the foundation for a prompt payment and adjudication regime. Since implementing a pilot program in 2018, Quebec has gathered data on monthly invoicing, payment timing and disputes. As more provinces bring prompt payment and adjudication legislation into force, expect Quebec to take further steps to implement wider legislative reforms to construction legislation.
On April 12, 2019, Nova Scotia passed legislation that amended the Builders’ Lien Act and changed its title to the Builders’ Lien and Prompt Payment Act. The new act has yet to come into force, however.
The act appears to be comparable to Ontario’s prompt payment legislation, but adjudication is not mandatory and only disputes regarding payments can be referred to adjudication. It appears that Nova Scotia has followed Alberta’s example and plans to publish regulations regarding prompt payment and adjudication rather than incorporating the specific requirements directly into the legislation.
Beginning in July 2019, New Brunswick’s Legislative Services Branch of the Office of the Attorney General released a series of law reform notes that support the introduction of prompt payment and adjudication in two stages: the first stage being an update to the existing lien legislation, and the second being the introduction of prompt payment and adjudication regimes. As part of stage one, New Brunswick’s Construction
Remedies Act came into effect on April 1, 2022. That act replaces and updates the Mechanic’s Lien Act. While the new act does not introduce prompt payment or adjudication legislation, its coming into force signals that stage two, the introduction of prompt payment and adjudication regimes, is under development by the province.
PRICE EDWARD ISLAND, 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.
While not in force, the federal Prompt Payment for Construction Work Act, which creates a prompt payment regime for federal public construction projects, received royal assent on June 12, 2019. The prompt payment provisions are similar to those in Ontario, Saskatchewan and Alberta, however adjudication is limited to payment disputes.
IF NOT NOW, SOON
It is no longer a question of “if” prompt payment will come to most of Canada, but rather merely a question of when. While the status of prompt payment and adjudication legislation throughout the country still varies, it is clear that most jurisdictions have determined that prompt payment regimes will be beneficial to the construction industry.
The effectiveness of these systems will take some time to determine and may depend on the specific requirements of each act. Regardless, for companies operating in multiple jurisdictions, it is important keep apprised of prompt payment and adjudication requirements and developments in each province, as they are not all the same.
Trish Morrison, partner and national business leader, and Marin Leci, senior associate, 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.