The Wait is Over: Regulations Have Been Released and Alberta’s Prompt Payment and Construction Lien Act comes into force August 29, 2022

On February 25, 2022, the Government of Alberta confirmed that the Prompt Payment and Construction Lien Act (the “PPCLA”)[1]Prompt Payment and Construction Lien Act, c P-26.4 [Prompt Payment Act]. will come into force on August 29, 2022,[2]Builders’ Lien (Prompt Payment) Amendment Act, 2020, c 30; Proclaiming the Builders’ Lien (Prompt Payment) Amendment Act, 2020, OC 50/2022. and published the long-awaited Prompt Payment and Adjudication Regulation and the Prompt Payment and Construction Lien Forms Regulation (collectively the “Regulations”).[3]Prompt Payment and Adjudication Regulation, Alta Reg 23/2022 [Prompt Payment Regulations] and Prompt Payment and Construction Lien Forms Regulation, Alta Reg 22/2022. [Forms Regulations]. As discussed in our previous post, participants and stakeholders in Alberta’s construction industry have been in a state of limbo since 2020, awaiting the coming into force of the PPCLA and the major changes it contains. Most notably, several new provisions in the PPCLA left much of the interpretive heavy lifting to the Regulations. With the coming into force of the PPCLA now confirmed and the publication of the Regulations providing necessary detail, parties can now take steps to ensure they are fully prepared for these major changes.

As outlined in our initial post from November 2020, the PPCLA will change the construction industry in four main ways, by: (i) instituting prompt payment timeline requirements; (ii) allowing for progressive release of holdbacks; (iii) creating an adjudication system; and (iv) extending the default periods for filing a lien. While the PPCLA sets out the major changes, the Regulations provide the necessary detail to fill in the gaps and make these changes functional.

The highlights from the Regulations include:

  1. New transition rules: the PPCLA provided that only contracts entered into after the PPCLA was proclaimed would be subject to the significant updates brought about by Bill 37 and Bill 62 (most notably, the prompt payment and adjudication regimes). The Regulations now provide that contracts entered into before the PPCLA is in force, but that are scheduled to remain in effect for longer than 2 years after August 29, 2022, must be amended within 2 years to indicate that they are subject to the PPCLA.
  2. Inclusion of engineers and architects: the Regulations stipulate that engineers and architects’ services are subject to the terms of the PPCLA where those services relate to an improvement.
  3. Adjudication process: details concerning the adjudication process have been given, the most salient of which is that a decision is to be made within 42 days of a notice of adjudication being filed and served (subject to an adjudicator extending the process by up to 10 days). Adjudicators will be appointed within 7 days of the adjudication notice, the claimant must submit its materials within 5 days of the adjudicator being appointed, and the respondent must submit its materials 12 days after it receives the claimants’ materials.
  4. Prescribed amount for progressive release of holdbacks: The PPCLA requires contracts which have a value over the prescribed amount to provide for a progressive release of the statutory holdback at least annually. The regulations set the prescribed amount at $10,000,000.

 

Prompt Payment Timeline

Pursuant to the PPCLA, the new prompt payment requirements are as follows:

  • the prompt payment timelines are triggered by the issuance of a “proper invoice” which must be issued by all contractors and subcontractors at least every 31 days (subject to narrow exceptions).[4]Prompt Payment Act, s. 32.1(6). Within this 31-day limitation, the Regulations stipulate that the owner and contractor may agree to specific terms as to when a proper invoice may be delivered.[5]Prompt Payment Regulations, s. 3.
  • upon receipt of a proper invoice the owner must (i) dispute all or part of the proper invoice within 14 days, and (ii) pay all undisputed amounts in the proper invoice within 28 days.[6]Prompt Payment Act, ss. 32.2(1) and (2).
  • a contractor must pay its subcontractors within 35 days of issuing a proper invoice to the owner[7]Prompt Payment Act. S. 32.3(4). or within 7 days of receiving: payment from the owner or a notice of non-payment from the owner,[8]Prompt Payment Act s. 32.3(1). unless the contractor issues its own notice of non-payment to its subcontractor, or serves the owner’s notice of non-payment, together with an undertaking that the Contractor will commence an adjudication no later than 21 days from issuing the notice;[9]Prompt Payment Act, ss. 32.2(5) and (6).
  • the above payment deadlines and obligations apply down the construction pyramid, applying as between subcontractors and their sub-subcontractors.

The requirements for a “proper invoice” are set out in the PPCLA,[10]Prompt Payment Act, s. 32.1(1). whereas the Builders’ Lien Forms Amendment Regulation sets out the prescribed forms in which all notices described above must take.[11]Forms Regulations, Forms 1-14.

 

Adjudication Process

The PPCLA creates the statutory adjudication system, whereas the Regulations provide the details necessary to allow for the adjudication system to be put into place and become operational.

Unlike Ontario, the Regulations stipulate that Alberta may have multiple Nominating Authorities. Authorized Nominating Authorities will determine who will act as adjudicators by issuing a certificate of qualification to adjudicate to eligible individuals. Part 2 of the Regulations sets out eligibility requirements to become an adjudicator. The stipulated requirements include “10 years of relevant work experience in the construction sector” and “sufficient knowledge and experience” in areas including dispute resolution, contract law, adjudication process, ethics, and determination writing.[12]Prompt Payment Regulations, s. 7(2). The Regulations also require ANAs to create a code of conduct which authorized adjudicators must adhere to.[13]Prompt Payment Regulations, s. 10.

Further, the Regulations clarify the kinds of disputes that can be adjudicated and the rules surrounding same. With regards to the kinds of disputes that can be adjudicated, the Regulations list the following matters:

(a) the valuation of services or materials provided under the contract or subcontract;

(b) payment under the contract or subcontract;

(c) disputes that are the subject of a notice of non-payment under Part 3 of the Act;

(d) payment or non-payment of an amount retained as a major lien fund or minor lien fund and owed to a party during or at the end of a contract or subcontract, as the case may be; and

(e) any other matter in relation to the contract or subcontract, that the parties in dispute agree to, regardless of whether or not a proper invoice was issued or the claim is lienable.[14]Prompt Payment Regulations, s. 19.

As for the rules surrounding the adjudication, the Regulations set out the following timelines and procedures:

StepsDays from service of notice of adjudication
Deadline for parties to agree on adjudicator4
Deadline for Nominating Authority to appoint adjudicator 11
Deadline for claimant to provide its submission16 (or 5 days from appointment of adjudicator, whichever is earlier)
Deadline for respondent to provide its submission28 (or 12 days from receipt of claimant’s submission, whichever is earlier)
Deadline for adjudicator to issue order determining the dispute46 (or 30 days from receipt of claimant’s submission, whichever is earlier)

 

Progressive Release of Holdbacks

The PPCLA makes progressive releases of holdback mandatory for projects where:

  • the completion date is longer than one year, or the contract provides for payments of the holdback on a phased basis; and
  • the contract price exceeds the prescribed amount,[15]Prompt Payment Act, s. 24.1. which pursuant to the Regulations is $10,000,000.[16]Prompt Payment Regulations, s. 2(2).

As stipulated in the Regulations, where a contract does not specify a phased amount, the partial release of holdback payment must be made on an annual basis.[17]Prompt Payment Regulations, s. 2(1).

 

Extension of default period for Liens

The PPCLA extends, or otherwise alters, the limitation periods for filing a lien as follows:

  • for general construction, the limitation period is extended from 45 days to 60 days; and
  • for any improvement primarily relating to “the furnishing of concrete as a material” or “work done in relation to concrete” the limitation period is extended to 90 days.[18]Prompt Payment Act, s. 27(2.21). However, the Regulations state that the 90 day limitation period does not apply to entities that install or use “ready-mix concrete”, as defined in the North … Continue reading

The Regulations clarify that the 90 day lien period does not apply to “entities that install or use ready-mix concrete”,[19]Prompt Payment Regulations, s. 36. which is defined as the “mixing together water, cement, sand, gravel or crushed stone to make concrete, and delivering it to a purchaser in a plastic or unhardened state”[20]North American Industry Classification System (NAICS) Canada 2017 Version 2.0, Code 32732 – Ready-Mix concrete manufacturing. This clarification suggests that the 90 day lien period would apply to concrete suppliers, or those engaged purely in preparatory activities (such as base preparation or installation of rebar), but not to the subcontractors who actually place and finish the concrete.

 

Transition Period

Any contract or subcontract entered into after August 29, 2022, will be governed by the new rules under the PPCLA and the Regulations.[21]Prompt Payment Act, s. 74(2). However, any contract entered into prior to August 29, 2022, will continue to be governed by the rules under the previous statute for a period of two-years.[22]Prompt Payment Regulations, s. 37. After the expiration of the two years, all construction contracts in Alberta will be subject to the PPCLA and the Regulations, and the new rules contained therein. While this calculus is relatively straightforward for most contracts, parties who have entered into contracts where work is scheduled to take just short of two years should consider the potential implications of any unforeseen delays on whether or not the new rules will apply.

As a result of this transition period, for the next two and a half years there will be contracts that are governed by the new rules and some governed by the old rules. Businesses and participants in Alberta’s construction industry will need to be cognisant of which rules apply to which contracts, as lien rights, payment rights and obligations, and dispute mechanisms will be significantly impacted. To this end, parties should consider reviewing and updating their contracts and internal processes to ensure contractual payment terms are consistent with the PPCLA and the Regulations.

 

Conclusion

The Regulations much needed clarity and refinement to the PPCLA, with the most substantial clarifications provided in regards to the adjudication process. The changes ushered in by the PPCLA and the Regulations are substantial. These changes will radically alter how the Alberta construction industry functions, particularly with regards to how and when parties are paid and how disputes are settled.

With proclamation of the PPCLA and the Regulations, it is incredibly important to have competent counsel with a deep understanding of construction law and the prompt payment and adjudication regime to ensure your business is prepared to thrive in this new legislative environment. The lawyers at McCarthy Tétrault have extensive experience in the construction industry and can help you navigate this complex legislative scheme.

References

References
↑1 Prompt Payment and Construction Lien Act, c P-26.4 [Prompt Payment Act].
↑2 Builders’ Lien (Prompt Payment) Amendment Act, 2020, c 30; Proclaiming the Builders’ Lien (Prompt Payment) Amendment Act, 2020, OC 50/2022.
↑3 Prompt Payment and Adjudication Regulation, Alta Reg 23/2022 [Prompt Payment Regulations] and Prompt Payment and Construction Lien Forms Regulation, Alta Reg 22/2022. [Forms Regulations].
↑4 Prompt Payment Act, s. 32.1(6).
↑5 Prompt Payment Regulations, s. 3.
↑6 Prompt Payment Act, ss. 32.2(1) and (2).
↑7 Prompt Payment Act. S. 32.3(4).
↑8 Prompt Payment Act s. 32.3(1).
↑9 Prompt Payment Act, ss. 32.2(5) and (6).
↑10 Prompt Payment Act, s. 32.1(1).
↑11 Forms Regulations, Forms 1-14.
↑12 Prompt Payment Regulations, s. 7(2).
↑13 Prompt Payment Regulations, s. 10.
↑14 Prompt Payment Regulations, s. 19.
↑15 Prompt Payment Act, s. 24.1.
↑16 Prompt Payment Regulations, s. 2(2).
↑17 Prompt Payment Regulations, s. 2(1).
↑18 Prompt Payment Act, s. 27(2.21). However, the Regulations state that the 90 day limitation period does not apply to entities that install or use “ready-mix concrete”, as defined in the North American Industry Classification System.
↑19 Prompt Payment Regulations, s. 36.
↑20 North American Industry Classification System (NAICS) Canada 2017 Version 2.0, Code 32732 – Ready-Mix concrete manufacturing.
↑21 Prompt Payment Act, s. 74(2).
↑22 Prompt Payment Regulations, s. 37.

Holding Pattern: Alberta Awaits Prompt Payment and Adjudication Regime

Provincial legislatures across Canada are finally heeding the call from industry to implement prompt payment and adjudication regimes. As of the writing of this post however, only Ontario’s Construction Act [1]RSO 1990 c C.30 has in-force prompt payment and adjudication provisions. Elsewhere in Canada, legislatures are at various stages of implementation. In Alberta, Bills 37 and 62 introduced amendments (and then revised those amendments) to the Builders’ Lien Act,[2]RSA 2000 c B-7 to introduce prompt payment and adjudication – amendments so significant, that the Builders’ Lien Act will be renamed to become the Prompt Payment and Construction Lien Act (the “PPCLA“). The authors have previously written regarding the PPCLA and the introduction and passing of Bills 37 and 62 here and here, respectively.

July 1, 2021 was the anticipated proclamation date for the PPCLA when Bill 37 was introduced in October 2020.[3]Protecting jobs in the construction industry – October 21, 2020 – YouTube This ambitious timeline gave industry only a few months to prepare for the substantial changes brought about by the new legislation. Unfortunately, the line between ambition and folly is often best perceived in hindsight, which appears to have been the case here. Following what the Minister’s office describes as “overwhelming feedback from stakeholders”, the July 1, 2021 effective date has come and gone without the PPCLA having been proclaimed into force, and without an alternate effective date being announced.

As of the writing of this post, industry stakeholders continue to engage with the government over the details of how this new legislative framework will operate in practice. Those details are anticipated to be fleshed out in the PPCLA‘s  yet-to-be-released regulations.

In addition to requiring the finalization of the regulations, the PPCLA will require the Minister to appoint an authorized “Nominating Authority” who will be empowered to appoint adjudicators to decide disputes subject to the adjudication regime. As of the date of this blog post, only the ADR Institute of Canada (ADRIC), in collaboration with the Royal Institute of Chartered Surveyors (RICS), has publicly announced an intention to submit a bid to become a Nominating Authority. An ADRIC-RICS Nominating Authority does not appear to be in a position to appoint adjudicators until at least 2022 however, when it has had an opportunity to qualify adjudicators according to its standards.[4]https://adric.ca/construction-adjudication/construction-adjudication-training/  It therefore appears unlikely that the PPCLA will be able to be proclaimed until at least spring 2022.

In the meantime, contracts or subcontracts entered into before the PPCLA is in force will continue to be subject to the existing provisions of the Builders’ Lien Act, subject to the yet-to-be-released regulations.[5]See Bill 37 s.26, PPCLA s. 74

For more information regarding the major consequences of the PPCLA, not just for the construction industry, but for any industry that is involved directly or indirectly in the buying, selling, drilling, mining, developing, maintaining or financing of land in Alberta, please see our team’s presentation that can be accessed here.

We will continue to monitor the progress of the PPCLA and other prompt payment and adjudication regimes across the country, and will provide further updates as they become available.

References

References
↑1 RSO 1990 c C.30
↑2 RSA 2000 c B-7
↑3 Protecting jobs in the construction industry – October 21, 2020 – YouTube
↑4 https://adric.ca/construction-adjudication/construction-adjudication-training/
↑5 See Bill 37 s.26, PPCLA s. 74

Payment Clause Held Not To Be A “Pay-When-Paid” Clause

In Cardinal Contracting Ltd. v. Seko Construction (Vancouver) Ltd., 2017 CarswellYukon 107, 2017 YKSC 51, the Yukon Supreme Court recently considered whether a payment clause in a construction contract was a pay-when-paid clause which entitled the contractor to only pay the subcontractor if and when it was paid by the owner.

The clause in question read as follows:

“Payments shall be made monthly on progress estimates as approved by the Contractor covering 90% of the value of the Work completed by the Subcontractor to the end of the previous month; such payments to be made 7 days after the Contractor receives payment for such Work from the Owner.” (underlining added)

The court considered the conflict in the law at the appellate level in Canada. In Timbro Developments Ltd. v. Grimsby Diesel Motors Inc., [1988] O.J. No. 448, the Ontario Court of Appeal held that the clause in question was a pay-when-paid clause, and that the contractor did not have to pay the subcontractor until paid by the owner. Justice Finlayson dissented, holding that the clause was a timing provision and “in no sense puts the subcontractors at risk that they will not be paid if the contractor is not paid. They are not co-adventurers or partners in this construction contract. Having done the work as found by the trial Judge, they are entitled to be paid.”

In Arnoldin Construction & Forms Ltd. v. Alta Surety Co., [1995] N.S.J. No. 43, the Nova Scotia Court of Appeal held that the clause in question was not a pay-when-paid clause which entirely protected the contractor from paying until paid by the owner. Rather, the clause was a payment timing clause which provided that payments by the contractor would generally be paid after payment from the owner but did not preclude the contractor form finally paying the subcontractor even if unpaid by the owner. In the Arnoldin case, the clause was being relied upon by the payment bonding company and that factor may have been important since it makes less sense to interpret the clause as entirely relieving the contractor from paying the subcontractor when the contractor has provided a payment bond to deal with that very situation.

In concluding that the clause was not a pay-when-paid clause, the Yukon Supreme Court said:

“I am in agreement with the interpretation in Arnoldin where the words in the contract before it which were not as clear and precise as the words in Timbro where the contractor clearly assumed the risk of non-payment by the owner to the contractor. In the case at bar, I am of the view that the payment clause is a timing clause rather than a “pay when paid” clause as in Timbro. There is no clear wording that the payment on the Subcontract was conditional on the owner paying the contractor. Therefore, I order that the balance outstanding shall be paid regardless of whether Martian has paid Seko, subject to amount only under the two remaining issues.”

Discussion

This decision follows the trend of recent cases. Most of the recent court decisions have held that, unless the language of the contract makes it very clear that the contractor does not have to pay the subcontractor at all if not paid by the owner, then the provision will not preclude the ultimate obligation of the contractor to pay the subcontractor.

It is difficult to distinguish Timbro from Arnoldin based upon the wording of the respective contracts. In Timbro the relevant wording was “when we have been paid by the owner”. In Arnoldin, the words were “after payment has been received by the Contractor.” The recent cases, following the Arnoldin and not the Timbro decision, may reflect a judicial antipathy to a clause which, in the absence of very clear words, denies payment to the subcontractor when, as Justice Finlayson said, it has done the work.

This decision high-lights the importance of the Prompt Payment regime proposed to be introduced into Ontario law by the Construction Lien Amendment Act, 2017. Under that legislation, a contractor is entitled to deliver to a subcontractor a notice of non-payment, and may deliver such a notice if it has not been paid by the owner. The same regime applies down the payment pyramid.

This legislation may arguably introduce into Ontario a statutory pay-when paid regime. That would be a surprising result since the general trend is for legislatures to ban pay-when paid (as has occured in the U.K. and in several U.S. states) and for courts to strain against finding that a clause is a pay-when-paid clause unless that is very clear.

Cardinal Contracting Ltd. v. Seko Construction (Vancouver) Ltd., 2017 CarswellYukon 107, 2017 YKSC 51

Building Contracts – pay-when-paid clauses – Prompt Payment legislation

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                         October 27, 2017

www.heintzmanadr.com

www.constructionlawcanada.com