BC’s Long Awaited Prompt Payment Reforms Land Amid Industry Downturn

Construction contractors across Canada have perennially experienced payment delays on projects, unfairly impacting their cash flow. The reasons for the payment delays are many. However, in essence, if a payee can get away with keeping money in its own pocket for longer, it is not likely to forego that opportunity.

For this reason, the industry has pushed for years for legislation that requires prompt payment on construction projects.  Ontario, Alberta and Saskatchewan have all in recent years enacted prompt payment legislation, and now British Columbia has introduced Bill 20, the Construction Prompt Payment Act.

The timing of the introduction of the prompt payment bill is somewhat unfortunate. For years, the construction industry in B.C. has boomed, and timely payment on projects was a top of mind issue for many contractors. However, the industry is now by no means booming, and prompt payment has fallen far down the list of most contractor’s priorities. While welcoming the new legislation, many contractors will no doubt wish that the government focus its attention on efforts to revive a stalling industry.

Nevertheless, Bill 20 includes provisions that will be welcome to many in the industry including:

1. Prompt Payment Timelines: The Act mandates clear timelines for payments on construction projects. Owners are required to pay contractors within 28 days of receiving a proper invoice. Subcontractors must be paid within 7 days after the contractor receives payment or by their calculated payment date, which is determined by adding 28 days to the invoice date plus 7 days for each contract position in the chain.
2. Proper Invoicing: The Act specifies what constitutes a proper invoice, including details such as the contractor’s name and address, invoice date, and a description of the services or materials supplied. This ensures transparency and consistency in billing practices.
3. Adjudication Process: To resolve payment disputes efficiently, the Act establishes a fast-track adjudication process. This provides an alternative to lengthy court proceedings, allowing disputes to be resolved quickly by an independent adjudicator. The adjudication process is designed to be accessible and timely, with determinations required within 30 days of receiving the necessary records.
4. Interest on Late Payments: Interest will accrue on late payments at the higher of the prescribed rate or the rate specified in the contract, incentivizing timely payments.
5. Builders Lien Act Amendments: The Act includes amendments to the Builders Lien Act, such as changes to the definition of “improvement” and adjustments to holdback requirements. Notably, the holdback period has been reduced from 55 days to 46 days, which aligns with the prompt payment objectives.

Once passed, the legislation will come into force after a transition period. This will allow time for the establishment of an adjudication authority and for industry outreach and education, ensuring that businesses understand their rights and responsibilities under the new system. The prompt payment rules are intended to apply broadly to both private and public sector projects, including government contracts. However, we do not yet know what exemptions will be applied to its application.

The experience in other provinces with prompt payment legislation has been mixed. It is fair to say that while it has provided positive benefits, it has not been the panacea that some had hoped.

A few years ago, the government would have been lauded by the industry for stepping in to address a significant concern. Since then, other concerns have become far more acute and pressing in an industry encountering a significant slowdown. Nonetheless, the introduction of prompt payment legislation will be warmly welcomed by many industry participants.

This article originally appeared in Business in Vancouver. It was co-written with Norm Streu, associate counsel with the law firm Harper Grey and past chair of the Vancouver Regional Construction Association. Chris Hirst is a partner and leader of the Construction and Engineering practice group at the law firm Alexander Holburn LLP.  Chris has been recognized in “Best Lawyers in Canada” since 2020 in Construction Law.