Prompt payment legislation resembling that which exists in the U.S. has been spreading across Canada. Although Ontario is the only province so far to have prompt payment legislation in force, it has been enacted in Saskatchewan and Nova Scotia, recommended in Manitoba and New Brunswick, and raised in other provinces. Additionally, a prompt payment regime related to construction projects under federal jurisdiction has been enacted by Parliament, though when it will come into force is unknown at this time.
Prompt payment legislation in Canada has the following characteristics:
- it imposes a schedule for progress payments under construction contracts and may limit the ability for contracting parties to set alternative payment schedules;
- payment within a specified number of days after delivery of an invoice in proper form is mandatory, unless the invoice is disputed by the payor;
- a payor who disputes an invoice must deliver a notice of non-payment to the invoicing creditor and, if only part of the invoice is in dispute, then the payor must pay the amount that is not disputed; and
- it is usually accompanied by statutory procedures for rapid dispute resolution through special adjudicators.
Prompt payment and special adjudication regimes have been brought across Canada in an attempt to address issues with the flow of funds within the construction pyramid. It appears that most provinces are following Ontario’s lead to ensure that payment flows from owner to general contractor to subcontractor and suppliers on a prescribed timeline. Below we take a look at the status of prompt payment regimes across Canada.
On May 28, 2019, a bill called the Builders Lien (Prompt Payment) Amendment Act, 2019 was introduced for first reading in the Legislative Assembly, but it has yet to advance to a second reading. In July 2020, the British Columbia Law Institute published a Report on the Builders Lien Act, which makes 86 recommendations in hopes of simplifying and clarifying the Builders Lien Act. However, this report neither endorses nor rejects prompt payment legislation as a scheme of relief additional to the ones already contained in the Builders Lien Act. Instead, it concentrates on problems surrounding the present legislation.
The British Columbia Construction Association has been lobbying the provincial government on the issue of passing prompt payment legislation. Its most recent presentation to the Select Standing Committee on Finance, dated June 4, 2020, discusses the urgent need for prompt payment legislation and points to the impact of COVID-19 on the construction industry.
In August 2020, the Select Standing Committee on Finance and Government Services issued a report containing 124 recommendations in respect of the upcoming provincial budget, including a recommendation that the government work with stakeholders to implement prompt payment legislation (Recommendation 36).
Bill 37: Builders’ Lien (Prompt Payment) Amendment Act, 2020 received royal assent on December 9, 2020, and will come into force on proclamation. As of June 2021, the Bill has not yet been proclaimed and regulations have not been issued. In April of 2021, additional changes to the amendments were proposed in Bill 62: Red Tape Reduction Implementation Act, 2021, which passed third reading on June 10, 2021, and received Royal Assent on June 17, 2021. Some of the key changes contained in Bill 37 and Bill 62 include the following:
- setting a 28-day timeline for project owners to pay invoices to general contractors;
- setting a seven day timeline for contractors to pay subcontractors after receiving payment (the seven day timeline also applies to subcontractors making payments to sub-subcontractors whose work or materials were included in the proper invoice);
- extending timelines for registering liens;
- creating dispute resolution through adjudication;
- introducing new rules allowing holdback money on large, multi-year projects to be released without risks at pre-set times;
- confirming the lien remedy is available to certain types of consultants;
- providing for electronic service of certificates of substantial performance; and
- renaming the Builders’ Lien Act to the Prompt Payment and Construction Lien Act.
On May 15, 2019, The Builders’ Lien (Prompt Payment) Amendment Act, 2019 received royal assent and, on August 20, 2020, The Builders’ Lien Amendment Regulations, 2020 was filed. Both of these will come into effect when proclaimed by Saskatchewan’s Lieutenant Governor. Some of the key changes introduced in this legislation include:
- the requirement that owners pay contractors within 28 days of receiving a “proper invoice”;
- contractors must pay their subcontractors and suppliers within seven days of receiving payment from the owner, and these subcontractors must pay their subcontractors and suppliers within seven days of receiving payment; and
- if a payor disputes an invoice, they must give written “notice of non-payment” to the payee; the dispute may then move to adjudication.
Within this legislation is a list of entities exempted from the prompt payment regime, including architects, engineers, land surveyors, and persons supplying services or materials with respect to an improvement related to infrastructure in connection with the generation, transmission or distribution of electrical energy or for any improvement with respect to a mine or mineral resource other than oil and gas.
On November 19, 2018, the Manitoba Law Reform Commission, a public statutory body, published its final report titled The Builders’ Liens Act of Manitoba: A Modernized Approach. This report provided recommendations for the improvement, modernization and reform of Manitoba’s Builders’ Liens Act. These recommendations include implementing a prompt payment and a private adjudication system with regulatory oversight. As of June 9, 2021, it does not appear that these recommendations have been implemented into legislation and there is no indication that the Manitoba government is dealing with them.
On October 1, 2019, changes to the Construction Act came into force, introducing a prompt payment and an adjudication regime. Some of the key changes include the following requirements:
- owners and general contractors must agree to a deadline to submit an invoice (if they do not agree, the contractor will be required to submit invoices to the owner on a monthly basis);
- owners are required to pay general contractors within 28 days after the owner receives the invoice from the contractor;
- general contractors must pay subcontractors within seven days of receiving payment from whomever hired them for the project and subcontractors must, within seven days of receiving payment, pay each subcontractor who supplied services or materials; and
- contractors and subcontractors have the right to charge mandatory interest on late payments beginning when the amount is due. Interest is the prejudgment rate determined under the Courts of Justice Act or the rate set out in the contract or subcontract, whichever is higher.
In the case of a payment dispute:
- owners are permitted to deliver a notice of non-payment to the contractor within 14 days of receiving the invoice from the contractor;
- contractors are permitted to deliver a notice of non-payment within seven days to the subcontractor; and
- subcontractors are permitted to deliver a notice of non-payment within seven days to other subcontractors they hire.
A major facet of the adjudication regime is that an adjudicator will issue a determination in approximately six weeks, which will be binding on the parties on an interim basis, until the dispute has finally been resolved in court or arbitration, or by agreement of the parties. If the parties are satisfied with the determination, they may agree to treat it as final.
On December 1, 2017, An Act to facilitate oversight of public bodies’ contracts and to establish the Autorité des marchés publics received royal assent. This act implemented a pilot project that was aimed at testing various measures to facilitate payment to enterprises that are parties to the public construction contracts that the Conseil du trésor determines. The pilot project prescribes the use of payment calendars and introduces dispute settlement by adjudicators.
On December 18, 2020, New Brunswick passed the Construction Remedies Act (the “Act”). The Act is not expected to come into effect until the requisite regulations have been developed. The Act is longer and more technical than and will replace the existing Mechanics’ Lien Act. The Act does not contain any provisions directed at a prompt payment scheme or an adjudication to resolve disputes and expedite payments. The Act represents the first phase of the two-phased approach to reforming the existing legislation proposed by the Office of the Attorney General in Law Reform Notes #42 (July 2019). The introduction of prompt payment and expedited adjudication measures are expected to be part of the phase two reforms still being developed. However, it is not clear when these reforms will be announced or when phase two will be completed.
On April 12, 2019, the Builders’ Lien Act (amended) received royal assent and will come into force by proclamation of the Governor in Council. This legislation will be renamed the Builder’s Lien and Prompt Payment Act. It provides a prompt payment regime as well an adjudication process to resolve disputes faster. It is believed that the regulations will establish prescribed timelines for things like notice of non-payment. At the time of publication, it does not appear that the regulations have been passed or proclaimed.
On June 21, 2019, the Federal Prompt Payment for Construction Work Act (the “Act”) received royal assent. It will come into force on a day to be fixed by order of the Governor in Council. This legislation will apply to construction projects on lands or immovable owned by the Federal Government, with the exception of leased federal lands or immovable, where the construction project is being undertaken by the lessor. In comparison to the Ontario prompt payment legislation, the federal legislation has similar timelines for providing a proper invoice and for providing payment. Some notable differences include:
- 21 days for the general contractor to provide a notice of non-payment to the owner after the proper invoice has been delivered, instead of the 14 days provided for in the Ontario legislation;
- giving the Governor in Council the discretion to exempt specific projects from the Act;
- ability to commence adjudication up to 21 days after the completion of a project;
- the Act will immediately apply to all new contracts entered into after it comes into force and, after one year, the Act will apply retrospectively to all contracts entered into prior to its coming into force; and
- there has been broad discretion given to the Governor in Council to define elements through regulation.
If you have questions about how your company may be impacted by current or planned prompt payment legislation, or about construction or payment disputes, the lawyers at Miller Thomson have extensive experience acting for owners, consultants and contractors in the construction industry and can help.
Authors: Charles Bois is a partner in the Vancouver office of Miller Thomson with a practice advising clients on construction, energy and environmental matters. This article was written with the assistance of Emma Johnston, partner in the Edmonton office of Miller Thomson, and Matthew Wray, associate in the Vancouver office of Miller Thomson.