If you are a contractor, you know how frustrating it is when your payments are delayed. Customers owe you money, and you need to pay your suppliers and subcontractors, but your cash flow is stalled.
Thankfully, some Canadian lawmakers have begun to see what a problem this is for construction professionals, and new laws may result in more prompt payments.
Ontario Construction Lien Act
In recent years, Ontario approved amendments to the Construction Act to ensure that workers and businesses get paid on time and to address any payment-related disputes. These updates went into effect in October 2019.
Per these amendments, construction laws now contain a framework for prompt payments. The timeline is as follows:
- General contractors and owners should agree to an invoice submission schedule. If they cannot agree, the contractor must submit an invoice to the owner each month.
- Owners must pay the general contractors with 28 days of receiving an invoice.
- After receiving payment from the owner, the general contractor must pay subcontractors within seven days.
- In turn, subcontractors are required to pay their subcontractors within seven days of receiving payments.
- If payments are late, general contractors and subcontractors can charge interest, starting on the due date. The interest is the rate set in the applicable contract or the rate determined by the Courts of Justice Act, whichever rate is higher.
If owners or contractors dispute the quality of the work or the amount due, the following guidelines apply:
- Within 14 days of receiving an invoice, owners are allowed to provide a notice of non-payment to the contractor.
- In turn, contractors can provide a non-payment notice to their subcontractors within seven days.
- And subcontractors have another seven days to provide a non-payment notice to their subcontractors.
The Construction Act amendment also put a new adjudication process in place, so owners, contractors, and businesses have an alternative to litigation. Some highlights of the process are below:
- The adjudicators have extensive construction industry experience and are experts in resolving disputes.
- The new adjudication process is overseen by the Authorized Naming Authority, which trains adjudicators and keeps a current registry.
- Adjudicators will review the issue, after which they and the affected parties may agree to a fee. If they cannot agree, the Authority will set a fee per a set fee schedule.
- Within six weeks of hearing the case, the adjudicator will issue a determination. It will be binding, on an interim basis, until all parties agree or until the dispute is resolved either by arbitration or in court. Once everyone is satisfied, the determination is final.
- After adjudication, if a party that owes payment does not comply, the party still owed payment can stop any further work, charge interest on the overdue payments, and file a certified copy of the adjudicator’s determination with the Superior Court of Justice for enforcement.
Alberta Construction Lien Act
In recent months, lawmakers in Alberta also addressed the non-payment issue. Last fall, they passed Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020, which was renamed the Prompt Payment and Construction Lien Act. Similar to the Ontario legislation, this act provides a payment timeline and rules for paying contractors and subcontractors in the construction industry.
Some highlights of this legislation include the following:
- Contractors must submit invoices to owners every 31 days unless otherwise agreed.
- Owners must pay invoices from general contractors within 28 days of receipt.
- Contractors must pay subcontractors full or partial payments within seven days of receiving their full or partial payments.
- The minimum payment owed can be subject to a lien increase from $300 to $700.
- Timelines for registering liens increase from 45 days to 60 days for the construction industry, and they increase from 45 days to 90 days for the concrete industry.
- There are new rules for handling holdback money on broad, multi-year projects. Bill 37 had allowed owners to release funds on a yearly or phased basis, but now they are required to do so if the contract stipulates it.
- If owners choose to dispute an invoice, they have 14 days to do so.
- Payment disputes can go through adjudication, which is less costly and time-consuming than going to court.
- If an owner issues a notice of non-payment, contractors must pay subcontractors within 35 days of the invoice. Otherwise, they must provide the subcontractors with information about the non-payment notice, any notice of dispute, or information about adjudication.
- Adjudicators will be appointed in May 2021 and likely become active in July 2021.
- Adjudication determinations in Alberta will be final and binding decisions, unlike the interim process in Ontario’s system, having significant implications for the use of litigation or arbitration once an adjudicator has issued a determination.
The Prompt Payment and Construction Lien Act received royal assent in December 2020 and is expected to be effective in July 2021.
The construction industry in both Ontario and Alberta employs thousands of workers and provides critical services for Canada’s infrastructure. These amendments help ensure that workers get paid on time, which preserves jobs and strengthens the economy. These new regulations also give construction professionals the stability and confidence they need to be successful. Other provinces may soon follow suit.
If you are a contractor and uncertain about your rights, do not hesitate to consult legal counsel. A highly experienced attorney can help you understand your contracts, explain payment regulations, and ensure that your interests are protected.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.