New Federal Prompt Payment … What It Means for Engineers
It will be important for consulting engineers to be aware of the new federal and provincial prompt payment legislation and adapt their billing practices accordingly.
(this article first appeared in the August/September 2019 issue of Canadian Consulting Engineer)
On June 21, 2019, the Parliament of Canada passed the Federal Prompt Payment for Construction Work Act (the “Act”). Though not yet in force, it will apply to construction projects on lands or immovables owned by the federal government, with the exception of leased federal lands or immovables, where the construction project is being undertaken by the lessor.
Types of work that fall under the Act include any work that will improve the value, productivity or useful life of a building. The Act, however, excludes maintenance or repair work performed to prevent normal deterioration or to maintain the normal, functional state of the real property or immovable.
Although not specifically mentioned in the Act, the services of engineers will presumably, in accordance with the existing case law for builders’ lien legislation, be covered by the Act so long as the engineering services provided are directly related to the construction of an improvement.
The new legislation is meant to work in tandem with provincial prompt payment legislation and the Governor in Council will have the power to exempt the application of the Act, or certain portions of the Act, for federal construction projects in provinces with satisfactory prompt payment legislation of their own.
The Governor in Council will also have power to exempt the application of the Act to specific projects. Whether the Act or provincial prompt payment legislation applies to a given project will be an important inquiry to undertake prior to submitting a bid.
As is the case in the recently passed Ontario and Saskatchewan prompt payment legislation (the “provincial legislation”) the payment cycle under the Act will revolve around the issuance of a monthly “proper invoice” from the general contractor to the owner.
From there, the owner must follow a set timeline for objecting to any work submitted for payment through a notice of non-payment, or pay the entirety of the invoice in no less than 28 days from the date of the proper invoice.
Payment then flows down the construction pyramid in seven-day increments. The Act also includes similar interim adjudication provisions as the provincial legislation, although the timelines, as well as the specific disputes subject to adjudication, have been left to the government to determine through as yet un-enacted regulations.
Adjudication is intended to provide for a quick interim determination of payment disputes. Decisions of the adjudicator will be enforceable in the same way as a court or arbitrator order. Interest on amounts found to have been wrongfully withheld will also be due and owing as of the date payment was due. The rate of interest will be either as set out in the contract or, at minimum, at a rate prescribed through regulation.
While under the provincial legislation, adjudicators will be able to take on an active and investigative role by hiring experts and conducting whatever investigation of the premises they deem necessary to resolve the dispute; under the federal Act, the powers of adjudicators remain to be defined through regulations. The timelines for interim adjudications are intended to be very quick and will favour well-organized parties with sound document management processes.
It will be important for consulting engineers to be aware of the new federal and provincial prompt payment legislation and adapt their billing practices accordingly. If they have been hired directly by the owner, they should ensure that their invoices comply with the legislative requirements of a proper invoice.
Because the nature of engineering services is often not conducive to monthly billing cycles, they may also wish to negotiate a different billing cycle with owners, which the Act permits. Although there is no obligation in the legislation for subcontractors to follow a specific billing cycle, engineers retained by a general contractor should exercise their right to be informed as to when proper invoices are being sent to the owner in order to know when they can expect payment of their invoices. Specific contractual language detailing when the engineer’s invoices are due and which proper invoice will include the payment for these invoices, is also advisable.