Prompt Payment Legislation – Update

The payment terms for construction projects are changing across Canada. Prompt payment legislation includes mandatory payment terms intended to increase the cash flow of contractors and subcontractors.

Prompt payment legislation is in force in Ontario, Saskatchewan, and Alberta. Federally, the Federal Prompt Payment for Construction Work Act received Royal Assent in June 2019 and the Government of Canada published draft prompt payment regulations in February 2023. Royal Assent has also been given to prompt payment legislation in Manitoba, Nova Scotia, and New Brunswick, and in British Columbia, legislation is being debated

ONTARIO

In Ontario, prompt payment requirements were enacted in October 2019 through an amendment to the Construction Act. The amendment is intended to ensure that contractors’ and subcontractors’ invoices get paid in a timely manner.  The amended Construction Act includes:

• Invoice requirements: a “proper invoice” is defined in the Construction Act as a written bill or other request for payment that includes specific details.
• Payment timelines: unless the invoice is disputed within 14 days, the owner is required to pay the contractor within 28 days of receiving the invoice. The payment timeline cascades – the contractor must then pay its subcontractors within 7 days after receiving payment, and subcontractors must pay their sub-subcontractors within 7 days of receiving payment.
• Penalties: if payment deadlines are not met, interest begins to accrue when payment is due at the rate specified in the contract or at a statutory rate if no rate is specified.
• Dispute resolution: disputes are adjudicated by the Ontario Dispute Adjudication for Construction Contracts. The adjudicator may issue directions for the adjudication, conduct on-site inspections, obtain expert reports, and determine the adjudication. The determination is binding unless it is overruled by the court, arbitration, or written agreement between the parties.

SASKATCHEWAN

The amendments to The Builders Lien Act, S.S. 1984-85-86, c B-7.1, enacting prompt payment requirements are similar to those in Ontario.  The prompt payment requirements are detailed in sections 5.1 through 5.9 of the Builders’ Lien Act and include:

• Exclusions: The prompt payment provisions do not apply to (1) persons who enter into a contract for services or materials for any improvement with respect to a mine or mineral resource, including any activities respecting exploration, development, production, decommissioning or reclamation; (2) architects, engineers and land surveyors; and (3) persons who enter into a contract for services or materials with respect to an improvement related to infrastructure in connection with the generation, transmission or distribution of electrical energy pursuant to The Power Corporation Act.
• Invoice Requirements: subject to regulations, The Builders’ Lien Amendment Regulations, 2020, proper invoices must be provided to the owner on a monthly basis, unless otherwise provided for by contract.
• Payment timelines: unless the owner gives the contractor a notice of non-payment within 14 days of receiving a proper invoice, the owner shall pay the proper invoice no later than 28 days after receipt. Like in Ontario, payment timelines cascade, and a contractor is to pay subcontractors and suppliers no later than 7 days after receiving payment from the owner and is to pay its subs 7 days after that.  Provisions are made for disputed subcontractor invoices and for circumstances where an owner does not pay an invoice in full.
• Penalties: where an invoice is not paid, interest begins to accrue when an invoice is due. Interest is at the greater of the pre-judgment interest rate pursuant to The Pre-judgment Interest Act or the contractually specified rate.
• Dispute Resolution: section 21 of The Builders’ Lien Act provides for adjudication of payment disputes.

ALBERTA

On August 29, 2022, Alberta’s Prompt Payment and Construction Lien Act and Prompt Payment and Adjudication Regulation came into force. Some of the pertinent provisions include:

• Invoice requirements: the contractor must issue a “proper invoice” to the owner at least every 31 days.
• Payment timelines: unless disputed within 14 days, the owner must pay a proper invoice within 28 days of receiving it. A contractor must pay its subcontractors within 7 days of receiving payment, and if the contractor does not deliver a notice of non-payment, it must pay its subcontractors in full within 35 days of issuing the proper invoice. Subcontractors must pay their sub-subcontractors within 7 days of receiving payment from the contractor, and if the subcontractor does not give notice of non-payment, it must pay its subcontractors in full within 42 days of the contractor issuing the proper invoice.
• Penalties: interest on late payments accrues at the rate specified in the contract or the current rate in the Judgment Interest Regulation if no rate is specified in the contract.
• Dispute Resolution: parties can refer disputes to adjudicators. Unless otherwise agreed, the adjudication process is not available until after contract completion.  The decision by the adjudicator may be binding.  The adjudication must follow the procedures in the regulations or as set by the nominating authority.

BRITISH COLUMBIA

British Columbia does not currently have prompt payment legislation. An amendment to the Builders Lien Act contemplated the introduction of prompt payment in 2019, but the bill (M 223) did not pass the first reading.  It included provisions similar to those in force in Ontario including:

• Invoice specifications: “proper invoices” to be issued monthly by the contractor to the owner.
• Payment timelines: payment is to be issued within 28 days after receipt of the proper invoice, subject to the notice of non-payment due to a dispute. Upon receipt of payment, contractors are to pay the amount received on a proper invoice to subcontractors within 7 days.
• Dispute resolution: the contractor may dispute a subcontractor’s invoice.

Although the proposed amendment did not pass the first reading, the Attorney General promised to move forward with prompt payment legislation, and another version is expected to be tabled in fall 2023.

The British Columbia Government established an industry task force to advance the drafting of the legislation and provide expert input. The industry task force is managed by the Ministry of the Attorney General and includes representatives from the Electrical Contractors Association of BC, the Mechanical Contractors Association of BC, and the BC Construction Association.

Manitoba

The Builders’ Lien Amendment Act (Prompt Payment) in Manitoba received Royal Assent in 2023 but is not yet in force. It contains payment deadlines similar to those in other provinces, including:

• Invoice specifications: “proper invoices” to be issued monthly by the contractor to the owner, unless otherwise provided in the contract.
• Payment timelines: payment is to be issued by the owner to the contractor within 28 days of receipt of a proper invoice, subject to the notice of non-payment to the contractor, within 14 days of receipt of the proper invoice. Upon receipt of payment from the owner, the contractor is to pay sub-contractors within 7 days, subject to dispute and other non-payment provisions. Subject to dispute provisions, the subcontractor must pay its sub-contractors within 7 days after receipt of payment.
• Dispute Resolution: the legislation provides for adjudication of payment disputes. The adjudication process is binding on the parties until an order is made on the matter by the court, a decision is made as a result of an arbitration under The Arbitration Act, a written agreement is entered into between the parties, or the arbitrator’s determination is set aside. Details of adjudications may be set out further in regulations.

New Brunswick

The Construction Prompt Payment and Adjudication Act received Royal Assent in New Brunswick in 2023 but is not yet in force. Once in force, the legislation will bring New Brunswick in line with other provinces like Ontario, Saskatchewan, and Alberta.  Provisions include:

• Invoice specifications: “proper invoices” must be submitted by a contractor to an owner on a monthly basis, unless otherwise provided in the contract.
• Payment timelines: much like in other provinces, payment is to be issued by the owner to the contractor within 28 days of receipt of a proper invoice, subject to the notice of non-payment to the contractor within 14 days of receipt of the proper invoice. Upon receipt of payment from the owner, the contractor is to pay sub-contractors within 7 days, subject to dispute and non- or partial payment provisions. Subject to dispute provisions, the subcontractor must pay its sub-contractors within 7 days after receipt of payment.
• Dispute resolution: the legislation provides a process for interim binding adjudication. The applicable Minister may by regulation designate an Adjudicator Authority. Determination by the adjudicator is binding until a determination by the court, determination of the matter in arbitration under the Arbitration Act, written agreement of the parties, or the determination is set aside on an application for judicial review. While the legislation sets out some of the processes, it appears that procedures will be set out in regulations and by the Adjudicator Authority.

Nova Scotia

Amendments to the Builders Lien Act have received Royal Assent in 2019 but are not yet in force.  In late 2022 legislation was introduced to amend the Builders Lien Act to create a non-profit adjudication authority.  The 2022 amendments received Royal Assent, but have not yet come into force.  As of April 10, 2023, the Government was seeking industry feedback and reviewing regulations related to payment and dispute regulation.  Nova Scotia intends for its prompt payment model to follow the Saskatchewan model.

Federal

The Federal Prompt Payment for Construction Work Act was assented to in June 2019 but has not come into force as of yet. The act applies to the Crown, any service provider and to any contractor or subcontractor that performs work for a construction project in Canada in respect of federal real property or federal immovable. The time frames established in the Federal legislation for payments are similar to those enacted by the provinces.

• Invoice specifications: “proper invoices” must be submitted by a contractor to the Crown or a service provider on a monthly basis, unless otherwise provided in the contract.
• Payment timelines: unless the invoice is disputed within 21 days, the Crown or the service provider is required to pay the contractor within 28 days of receiving the proper invoice. The contractor must then pay its subcontractors within 35 days of submitting the proper invoice. Subcontractors must pay their sub-subcontractors within 42 days of the contractor submitting the proper invoice. This cascading effect continues by adding an increment of 7 days for each link in the subcontracting chain.  Payment timeframes are subject to partial and non-payment notification provisions.
• Dispute resolution: the legislation provides that parties can submit a payment dispute for adjudication. Determination by the adjudicator is binding unless the parties come to a written agreement or the determination is set aside by a court order or arbitral award.  The language of the legislation and draft regulations provides that the provinces with similar enacted legislation can set the adjudication regime.

Conclusion

Undoubtedly, prompt payment legislation is on the minds of the construction industry.  The new legislation introduces significant changes to payment procedures with timelines that must be adhered to.  Parties to the construction contracts need to pay close attention to and understand, the timelines set out.  If you are in a province where legislation is in force, we recommend seeking legal advice on the provisions in force in your province.

Please contact a member of our Construction + Engineering Group if you have any questions regarding the above.