Prompt Payment: The State of Play in Canada
For nearly a decade, provinces across Canada have been grappling with how to meet the challenge of prompt payment in the construction industry.
Prompt payment issues generally arise in two scenarios: either the promptness of normal payments to contractors, subcontractors and suppliers during a project; or the payment impasse that arises in the event of a dispute. Prompt payment legislation in Canada has been developed to address these issues by imposing payment deadlines and introducing arbitration processes to provide potentially shorter dispute resolution times.
Since the introduction of prompt payment legislation in Ontario in 2019, several other provinces have filed, enacted, or are in the process of enacting prompt payment and arbitration legislation.
In February 2022, Alberta announced that the 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 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 before that date will need to be amended to comply with it if they are to remain in effect after August 29, 2024. The law does not bind the province and will not apply to any public works or P3 project.
The PPCLA is making sweeping changes that will have a significant impact on construction projects in Alberta. In addition to creating an arbitration process to resolve disputes, the PPCLA introduces a framework with tight payment and notice periods.
PPCLA’s prompt payment system will render a “proper invoice”, as defined by PPCLA, valid and payable unless a series of technical requirements for opposing payment of an invoice are met. For example, upon 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 have received the appropriate invoice.
In turn, a contractor must pay its subcontractors within seven days of receiving payment from the owner, unless it provides the required notices to its subcontractors within the mandatory time limits. Failure by a Contractor to deliver the required notices to its subcontractors within the time allowed, a Contractor will be required to pay its subcontractors in full, even if it has not received any payment from the Owner.
Essentially, PPCLA’s Prompt Payment Framework inserts a statutory “pay-when-pay” clause into every construction contract, albeit with significant differences. Under a traditional pay-on-payment clause, the time of payment is triggered when an owner pays the contractor. However, under the PPCLA, the pay-as-you-pay mechanism is only activated if a contractor delivers the required notice of non-payment to its subcontractors within the mandatory timeframes.
In the absence of notification, the contractor is required to pay its subcontractors within the legal deadlines, whether or not they have been paid by the owner. Additionally, the law does not permit the use of pay-at-time contract terms, or other payment terms, to extend payment terms.
Arbitration provisions are set out in both the ACPPA and the regulations. When used, arbitration will provide an expedited process for resolving disputes. However, arbitration cannot always be used because the PPCLA states that the parties cannot submit a dispute to arbitration if a legal action has already been brought.
Members of the construction industry working in Alberta should begin taking steps to update contracts and administrative processes to comply with the new requirements when they come into effect.
Ontario was the first province to introduce and implement prompt payment and arbitration legislation, which came into force in October 2019. Several provinces, including Alberta, have used the Construction Act of Ontario as a model for their respective legislation. Ontario’s prompt payment system is similar to Alberta’s.
While it appears Ontario’s construction industry has adapted to these changes, transitional provisions in the Ontario Construction Act may actually mean that some major projects in Ontario are still operating under the old law. 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 arbitration, Ontario law makes arbitration mandatory. Ontario is also the only province to produce meaningful officiating data. In its 2021 annual report, the Ontario Dispute Adjudication for Construction Contracts, the body that oversees arbitration processes, reported that approximately 50 arbitration claims worth a total of $8.7 million were commenced in 2021. Of these, 34 arbitration awards were issued, ordering a total of $908,122.83 to be paid. These figures suggest that Ontario’s arbitration system is still in its infancy, but could grow in the years to come.
On March 1, 2022, the Builders’ Lien (Prompt Payment) Amendment Act came into force in Saskatchewan. These changes are similar to those in Alberta and Ontario in that unless a homeowner disputes a bill, they must pay it within 28 days. Contractors who do not file proper notices disputing payment are required to pay their subcontractors within seven days of receiving funds.
Under Saskatchewan’s new law, arbitration is similar to Ontario’s arbitration provisions. Similar to that province, the Government of Saskatchewan has announced that the Saskatchewan Office of Construction Dispute Resolution is the official decision-making authority under the law.
This is a marked departure from Alberta’s market-based approach, which allows for the possibility of multiple arbitration authorities that parties can select when referring a dispute to arbitration.
Although Manitoba has introduced Bill 28: The Prompt Payment for Construction Act, it has not yet been passed. Bill 28 received first reading on March 16, 2022. It may be some time before Manitoba actually implements this legislation.
As currently drafted, the bill will bind the province and require owners to pay contractors no later than 20 days after approval or deemed approval of a valid invoice. However, since Bill 28 does not yet have the force of law, there may be revisions to its language as Manitoba benefits from learning from provinces that have, or are about to implementation, prompt payment and arbitration legislation.
On January 24, 2022, in an effort to drive more progress in introducing prompt payment legislation, British Columbia created an industry working group to expedite progress on potential prompt payment legislation. prompt payment in British Columbia. However, the province has yet to introduce new legislation.
Quebec continues to lay the groundwork for a rapid payment and arbitration regime. Since implementing a pilot program in 2018, Quebec has collected data on monthly billing, payment times and disputes. As more provinces implement prompt payment and arbitration legislation, expect Quebec to take further steps to implement broader legislative reforms to construction laws. .
On April 12, 2019, Nova Scotia passed legislation amending the Builders’ Lien Act and changing its title to the Builders’ Lien and Prompt Payment Act. However, the new law has not yet entered into force.
The law appears to be comparable to Ontario prompt payment legislation, but arbitration is not mandatory and only payment disputes can be referred to arbitration. It appears that Nova Scotia has followed Alberta’s lead and is considering issuing regulations regarding prompt payment and arbitration rather than incorporating the specific requirements directly into legislation.
Beginning in July 2019, the Legislative Services Branch of the New Brunswick Office of the Attorney General released a series of law reform briefs that support the introduction of prompt payment and two-stage arbitration: the first step being an update of existing lien legislation, and the second being the introduction of prompt payment and adjudication schemes. As part of the first phase, Construction of New Brunswick
The Remedies Act came into force on April 1, 2022. This Act replaces and updates the Mechanic’s Lien Act. Although the new law does not introduce a prompt payment or arbitration law, its entry into force signals that the second stage, the introduction of prompt payment and arbitration schemes, is being developed by Province.
EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR PRIZE
Prince Edward Island and Newfoundland and Labrador do not appear to have plans to develop or introduce prompt payment and arbitration legislation at this time.
Although not in force, the Federal Prompt Payment for Construction Act, which creates a prompt payment regime for federal public construction projects, received Royal Assent on June 12, 2019. prompt payment are similar to Ontario, Saskatchewan and Alberta, however, arbitration is limited to payment disputes.
IF NOT NOW, SOON
It is no longer a question of “if” prompt payment will arrive in most of Canada, but simply of when. While the state of prompt payment and adjudication legislation across the country still varies, it is clear that most jurisdictions have determined that prompt payment schemes 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 law. Either way, for companies operating in multiple jurisdictions, it is important to keep up to date with 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 Partner, are construction lawyers at Borden Ladner Gervais LLP. This article provides an overview and is not intended to be exhaustive of the subject it contains. Although care has been taken to ensure accuracy, this article should not be considered legal advice.