Canada: Canada Prompt Payment Act Update: Senate Approved

In an effort to lead reform in the payment practices of the Federal bureaucracy, the Canadian Senate introduced prompt payment legislation under Bill S-224, the Canada Prompt Payment Act (the "Bill") which, if passed, would apply to construction contracts made with the Federal Government and related subcontracts.

After passing its second reading last November, the Bill was referred to the Standing Committee on Banking, Trade and Commerce (the "Committee").

The Bill was the topic of discussion in four Committee meetings in mid-February; over the course of four days, the Committee heard from representatives from the industry as well as government officials and legal experts in construction law and constitutional law.

On April 4, 2017, the Committee released its report on recommended changes to the Bill (the "Committee Report"). On May 4, 2017, the revised Bill passed third reading and will now need to proceed through the House of Commons before it becomes law.

Committee Hearing Transcripts

Full transcripts of the testimony can be found on the Committee's website. What follows is a brief summary of key issues raised by stakeholders during the Committee's meetings.

The transcripts demonstrate clear support for the Bill amongst sub-contractor representatives. Payment enforcement was raised as a key issue in the construction industry. Without an effective enforcement mechanism, funds received by general contractors do not flow down to sub-contractors in a timely manner, forcing sub-contractors to pay suppliers, employees, etc. with credit while they wait for their payment. Furthermore, the court system may take years to resolve a particular conflict. There was support for a faster adjudication process that would be specific to the construction industry.

However, there were also industry representatives who took the position that the Bill paints with "too broad a brush" and attempts to apply a "one size fits all" approach in an industry that varies immensely in project size and complexity across the country.

There were also concerns raised about the Federal Government's role in overseeing and/or enforcing payment when a dispute occurs between contractors "down the chain" that have entered into a private contract between themselves. Concerns with respect to the constitutionality of the Bill were also raised.

Constitutionality of Bill S-224

The Committee heard from both the Department of Justice and Gerald Chipeur of Miller Thomson LLP on the constitutionality of Bill S-224.

A senior counsel member from the Department of Justice stated that he believed the constitutionality of the Bill was "questionable" because the regulation of construction contracts is generally a provincial matter.

Mr. Chipeur opined that the Bill was in fact constitutional. He stated:

The Supreme Court of Canada is clear that Parliament has jurisdiction over federal property and that anything that is integral to the property or the creation of that property is within the federal jurisdiction and is paramount to any provincial common law or legislation.

The Committee Report

Several proposed amendments to the Bill were put forward in the Committee Report.

Overall the proposed changes seemed to demonstrate a concentrated effort to align the language of the Bill with the payment application approval process. The Committee Report's proposed amendments softened the language of the Bill, requiring that payment applications meet contractual requirements and that payment applications be certified before any prompt-payment deadline begins to run.

For example, among other proposed changes, the Committee recommended that:

  • the definition of "payment application" should be limited to invoices, bills, or other requests for payment that "meets the requirements for submission and content set out in a construction contract"
  • the government and contractors' payment deadlines should only begin to run after payment applications are approved or certified
  • final payment applications should be approved or certified before the government or contractor's deadline begins to run
  • in the definitions section, wording was added to clarify the definitions of "milestone" and "payment application" and put them in the context of a construction contract

The Committee Report also proposed further protection for sub-contractors in the language of the Bill, specifically that milestone payments from contractor to subcontractor could not be set at longer intervals than those set out in the contractor's contract with the government.

The Committee Report proposed amendments that expanded on the timing and requirements for an adjudication process under the Bill similar to what I being considered in lien legislation reform in Ontario. For example, in addition to the current wording of the Bill, the Committee Report recommended that:

  • parties have 10 days to provide written submissions to the adjudicator after the adjudicator's appointment, or the receipt of notice that a party intends to refer the dispute to an adjudicator, whichever is later
  • the adjudicator has to render a decision in 28 days, or a greater amount of time agreed on by the parties
  • if the adjudicator fails to render a decision in time, the parties can refer the dispute to a different adjudicator as long as they comply with the notice provisions
  • the parties must obey the decision of the adjudicator until the matter is "finally determined" by legal proceedings, arbitration, or mutual agreement by the parties

Conclusion

Now that the Bill has passed third reading in the Senate, the Bill must proceed through the House of Commons before becoming law. For up to date progress on the Bill, visit the Senate webpage for the Canada Prompt Payment Act here.

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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