On December 9, 2023, the Federal Prompt Payment for Construction Work Act, SC 2019, c 29, s 387 (the "Act") came into force. The Act requires the Government of Canada ("Canada") to pay all construction contractors within 28 calendar days of the contractor submitting a proper invoice. The contractor then has 7 days to pay subcontractors, who will then have another 7 days to pay sub-subcontractors, and this cascade continues down until all parties have been paid. The exception is when a notice of non-payment is issued along the chain – after which the Act mandates the parties to go through an adjudication procedure.

WHERE, WHEN AND TO WHICH CONTRACTS DOES THE ACT APPLY?

The Act applies to contracts made between contractors, and their associated subcontractors, and Canada, or one of Canada's service providers, for construction work for the purposes of a construction project located in Canada in respect of any federal real property or federal immovable as defined in section 2 of the Federal Real Property and Federal Immovables Act, SC 1991, c 50. The Act does not apply to a contract for a construction project unless the contract is in respect of federal real property or a federal immovable, which are respectively defined as:

federal immovable means an immovable belonging to Her Majesty, and includes an immovable of which Her Majesty has the power to dispose;

federal real property means any real property belonging to Her Majesty, and includes any real property of which Her Majesty has the power to dispose;

The Act contains a transitional provision, which provides that, for contracts entered into before December 9, 2023, the Act will not apply for one year after coming into force.

The Act also allows Canada, by order of the Governor in Council, to designate provinces as exempt from the application of the Act's prompt payment regime. Canada can do this when a province already has a "reasonably similar" prompt payment and adjudication regime in place.

On December 8, 2023, the Governor in Council made an order designating Ontario, Saskatchewan, and Alberta as exempt.1 The "Regulatory Impact Analysis Statement" following the order highlights that Nova Scotia and Manitoba are taking steps to enact similar legislation in order to become designated.

In Alberta, therefore, the governing statute with regards to prompt payment for construction work is the Prompt Payment and Construction Lien Act, RSA 2000, c P-26.4.

WHO ARE SERVICE PROVIDERS?

"Service provider" is defined in section 2(1) of the Act as:

"...a party to a contract with Her Majesty under which that party is to provide Her Majesty with services related to federal real property or a federal immovable and may, for the purposes of fulfilling its obligations under that contract, enter into a contract with a person for the carrying out of a construction project, but does not include a party to such a contract if they are the lessor or lessee of the federal real property or federal immovable."

It is also worth noting that the definition of a contractor in the same section of the Act also excludes the lessor or the lessee of federal real property or a federal immovable.

This means that the Act applies to contracts between contractors and Federal Crown agencies, as long as the contract is in relation to federal real property or a federal immovable, and as long as neither party is a lessor or lessee of federal real property or a federal immovable.

WHAT HAPPENS IF CONTRACTORS OR SUBCONTRACTORS ARE NOT PAID?

The Act establishes a regime for adjudicating disputes under contracts to which the Act applies. Section 16 of the Act allows contractors or subcontractors who have not been paid within the prescribed time limits to refer the matter to adjudication. For example, a contractor or subcontractor who has not been paid, or who has only been partially paid and has been served with a notice of non-payment, can dispute the non-payment by serving a notice of adjudication.

Notice of the adjudication must be provided to the other party no later than the 21st day after the later of the following:

  1. the day on which the contractor receives a certificate of completion with respect to the construction project from Her Majesty or a service provider; and
  2. if any of its construction work is covered by the last proper invoice submitted with respect to the construction project, the expiry of the time limit provided under the Act for payment for that work.

The Act states that the decision of the adjudicator is binding, unless the parties come to a written agreement or if the determination of the adjudicator is set aside by a court order or arbitral award. It should be noted that nothing in the Act restricts the authority of a court or of an arbitrator to consider the merits of a matter determined by an adjudicator. If a party is ordered to pay by the adjudicator, the party must make that payment no later than the 10th day after the day on which it received the adjudicator's determination, or within any other time limit set out in the determination.

HOW TO PREPARE FOR COMPLIANCE WITH THE ACT

Parties to whom the Act will be relevant should make the following determinations to ensure that they are ready to comply with the Act:

  1. Determine if your province has been exempted by an order of the Governor in Council;
  2. Determine if you are party to a contract for a construction project in respect of federal real property or a federal immovable;
  3. Determine if you, or the party that you are entering into a contract with, are the lessor or lessee of federal real property or a federal immovable;
  4. If you determine that you are party to a contract to which the Act would apply, determine if that contract was entered into before December 9, 2023.

Footnote

1. The order is linked here: https://gazette.gc.ca/rp-pr/p2/2023/2023-12-20/html/sor-dors270-eng.html

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.