Canada: Canadian Prompt Payment And Construction Law Reform

How recent developments may impact the Canadian construction & infrastructure sector

The Canadian construction and infrastructure sector needs to be prepared for a number of proposed major overhauls to construction law underway in several provinces and at the federal level.

Ontario is awaiting draft legislation, based on proposed recommendations to the Construction Lien Act, for expected issuance by June 2017. The recommendations underpinning the expected bill were released last fall after an extensive review of the Construction Lien Act (the Ontario Report) commissioned by the Ministry of the Attorney General and the Ministry of Economic Development, Employment and Infrastructure with the goal of modernizing construction law in Ontario.

The Ontario Report was the Ministry's response to significant lobbying efforts by the construction industry and stakeholder concerns about the perceived shortcomings of the Construction Lien Act — which hadn't undergone a holistic review since its enactment in 1983. The Ontario Report identified and addressed in detail several key main points for industry participants, including prompt payment; adjudication; lienability; preservation, perfection and expiry of liens; holdback and substantial performance; summary procedures; construction trusts; surety bonds; technical amendments; and industry education.

In total, the Ontario Report made 100 recommendations for reform, including most notably the adoption of a prompt payment regime, mandatory speedy adjudication of construction disputes, and mandatory holdback release, all of which would be implemented in new legislation replacing the current Construction Lien Act with a proposed "Construction Act: An Act respecting Security of Payment and Efficient Dispute Resolution in the Construction Industry."

However, Ontario isn't the only jurisdiction undergoing construction law reform; other Canadian jurisdictions are considering prompt payment regimes as well:

  • In Québec, finance minister Carlos Leitão confirmed that the province would be introducing new prompt payment rules to apply to public sector projects by the spring of 2017. The impetus of these rules differs from those in Ontario and stems from a recommendation from the Charbonneau Commission investigating corruption in the construction industry in Québec. The lack of prompt payment was seen to create a greater temptation for corruption to occur for several reasons, including disadvantaged cash flow to smaller contractors and abuses of power in holding up progress payments.
  • In Alberta, starting in April of 2016, Alberta Infrastructure began implementing prompt payment clauses in its various contracts.
  • In British Columbia, the B.C. Law Institute is currently undertaking a review of the Builders Lien Act to generate a report containing balanced recommendations for reform.  

Finally, at the federal level, there are several initiatives:   

  • First, the Senate is proceeding with a bill to mandate prompt payment at the federal level (Senate Bill S-224, proposing the Canada Prompt Payment Act) and is currently conducting hearings in front of the Standing Senate Committee. The proposed Act would apply to construction contracts (which would include P3s) made with the federal government or government institutions and related subcontracts.  A government institution would include a department or ministry of state of the Government of Canada, and any body or office listed in Schedule I to the Access to Information Act, any parent crown corporation, and any wholly owned subsidiary of a crown corporation, within the meaning of section 83 of the Financial Administration Act
  • Second, and separately from this, Public Services and Procurement Canada (PSPC) (formerly PWGSC) and Defence Construction Canada (DCC) are currently part of a government/industry working group on prompt payment, and are currently considering revisiting construction contract terms and prompt payment terms including holdback, payment disclosure, a public payment website, benchmarking payment terms, and disputes.

Accordingly, the Canadian construction and infrastructure sector should be keeping a watchful eye on developments in the individual provinces and federally as the push for prompt payment is clearly gaining significant momentum. Lenders, owners and general contractors across various industries throughout the country — including infrastructure, commercial real estate development, wind energy, and project finance, to name a few — must understand the commercial implications of these potential changes to their commercial arrangements. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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