New Alberta law will require prompt payment in construction
June 24, 2022 | By Alison Espetveidt and Rahul Ranade
It will be prudent for consulting engineers to familiarize themselves with the new provisions.
In recent years, several Canadian jurisdictions have enacted prompt payment laws creating mechanisms for construction contractors and subcontractors to obtain timely payments on construction projects. These include amendments to the Construction Act in Ontario that came into effect in October 2019 and the enactment of the Federal Prompt Payment for Construction Work Act in July 2019 at the federal level (yet to come into force).
Alberta is set to join the list of prompt payment jurisdictions on Aug. 29, 2022, when amendments to the Builders’ Lien Act enacted through Bill 37 come into force. Besides adding new prompt payment provisions that are discussed below, Bill 37 changes the name of the Builders’ Lien Act to the Prompt Payment and Construction Lien Act (the “Prompt Payment Act” or “Act”).
The Province recently issued a new regulation – Prompt Payment and Adjudication Regulation (“PPA Regulation”) – and amendments to the existing Builders’ Lien Forms Amendment Regulation (“Forms Regulation”), both of which come into force at the same time as the Act.
Prompt payment provisions
The most significant aspect of the Prompt Payment Act is that it provides specific payment deadlines on construction projects. An owner must pay the contractor within 28 days of receiving a “proper invoice” while the contractor must pay their subcontractors (whose work is included in the invoice) within seven days of receiving payment. The subcontractor, in turn, must pay their own subcontractors within seven days of receiving payment.
Simplistically, the Act can be seen as providing a cascading scheme that works on a ‘28-7-7’ basis, with a 28-day payment limit at the head contract level and seven-day limits at the levels below the head contract.
Importantly, payors (owners, contractors, and subcontractors) are not subject to their respective payment deadlines if they provide to their payees a notice of dispute within the time period set out in the Act. The form of such notices must be as provided in the Forms Regulation.
A “proper invoice” is defined in the Act as an invoice that contains several pieces of information listed in section 32.1(1) of the Act. In addition to the listed requirements, the invoice must meet other requirements specified in the contract between the parties. If invoices are not paid within the statutory deadlines, the unpaid balances will be subject to interest at the rates prescribed in the PPA Regulation.
It should be noted that the Prompt Payment Act will only apply to any contract entered into on or after Aug. 29, 2022.
The Act provides for a dispute adjudication mechanism under which an owner, contractor or subcontractor may refer a dispute arising out of prompt payment or builders’ lien provisions for adjudication. Interestingly, the scope of such adjudication is broader than only prompt payment and builders’ lien, as parties may also refer disputes related to change orders for adjudication.
The requirements for qualification and nomination of adjudicators are provided in the PPA Regulation. This regulation also addresses procedural requirements including what notices are owed by the parties, the adjudication process, and termination of adjudication.
The core provisions of the existing Builders’ Lien Act regarding holdback remain largely unchanged. Owners are still obligated to retain 10% of payments as holdback, which act as a limitation of the owner’s liability. Unpaid parties will continue to have the right to file liens, and owners may have such liens discharged under certain conditions. The Prompt Payment Act clarifies the scope of the existing lien/holdback framework by expressly providing that the furnishing of concrete as a material or work is covered by holdback provisions.
Relevance for consulting engineers
It is important for consulting engineers to understand legislated prompt payment requirements. Consulting engineers are likely to be involved on both sides of a construction project – paying and receiving payments. Consulting engineers often act for project owners as contract administrators or payment certifiers and, in such roles, would be responsible for understanding and implementing owners’ payment obligations. On the other hand, consulting engineers are also called upon to prepare invoices, either acting for contractors or working as subcontractors themselves (for example, on design-build projects).
In situations where consulting engineers are acting on behalf of payors and are responsible for approving invoices, they should note two important deadlines under the Act – those for filing notices of disputes and those for making payment. Failing to meet either deadline could result in commercial or legal risk for the payors. Further, engineers should note that the form of the notices must follow that set out in the Forms Regulation.
On the other hand, when acting for payees and preparing invoices, consulting engineers should know the requirements for “proper invoices”. A defective invoice will prevent the engineer or their clients from getting the benefits of prompt payment.
While the recent wave of legislative reforms related to prompt payment in Canada does not directly pertain to the consulting profession, consulting engineers will often find themselves operating right where the statutory rubber hits the road, when they prepare and review construction invoices on behalf of their clients and when they themselves act as subcontractors on construction projects.
Failure to meet these legislative requirements could result in a commercial disadvantage for clients or the engineers themselves. While the Act does not come into force until later this summer, preliminary copies of the Prompt Payment Act, the PPA Regulation, and the Forms Regulation are all available for review. It would be prudent for consulting engineers with any involvement with construction in Alberta to familiarize themselves with these provisions before they come into force.