The Federal Prompt Payment for Construction Work Act1 (the "Federal Act") is now in force,2 and is set to impact contracts for construction work on federal lands. The Federal Act was implemented to streamline payments for construction work, primarily through setting legislated payment deadlines and an expedited dispute resolution process to enforce those deadlines.
The Federal Act has significant consequences for your contracts, cash flow, and dispute resolution options for federal construction projects. This post provides a brief overview of the main components and practical implications of the Federal Act, and how you can prepare for its application.
Summary of Key Components
- Application: The Federal Act applies to construction work conducted on federal lands. It promotes the prompt payment of contractors and subcontractors, helping to keep projects moving forward;
- Prompt Payment: federal project proponents must pay any undisputed invoices within 28 days of receipt of the invoice, and dispute all or any part of the invoice within 21 days. Contractors and subcontractors have 7 days from the time they receive payment or a notice of dispute to pay or dispute their subcontractors' invoices;
- Adjudication: contractors or subcontractors may apply for a qualified construction industry professional to decide payment disputes on federal construction projects subject to the Federal Act. Adjudications will be administered by the Canada Dispute Adjudication for Construction Contracts ("CanDACC"), who will train and appoint adjudicators, and administer adjudications commenced under the Federal Act.
When does the Federal Act Apply?
The Federal Act applies to the supply of materials or services (including rental equipment) for "construction projects" located in Canada in respect of federal real property or a federal immovable carried out by the federal government or a service provider for the federal government.
Construction projects are broadly defined as any addition, alteration or capital repair, restoration, construction, erection, or installation, and includes "complete or partial demolition" and "installation of equipment that is essential to the normal or intended use of the federal real property or federal immovable".3
Federal real property includes land, mines and minerals, buildings, structures, improvements, and other fixtures, whether above or below ground and includes interests in any of those.4 Federal immovable means land or anything permanently attached to land (such as buildings and structures) including the rights of a lessee.5
The Governor in Council has authority to designate that provincial legislation will apply in lieu of the Federal Act where a province has legislation similar to the Federal Act, and to adapt any provisions of the Federal Act to address any inconsistency or conflict between the federal and provincial law.6The Governor in Council also retains the discretion to exempt particular projects from the provisions of the Federal Act.
Where the Federal Act applies, the Federal Government, or its service provider, has a duty to inform the contractor that the Federal Act applies to the contract, and the contractors and subcontractors have a duty to inform their subcontractors.7
Prompt Payment
The centerpiece of the Federal Act is the legislated payment timelines. The payment timelines start from the contractor issuing a "proper invoice" to the Federal Government, or its service provider. Once a proper invoice is submitted, the Federal Government has 21 days to dispute all or any part of the proper invoice (by issuing a notice of non-payment),8 and 28 days to pay all undisputed amounts.9 A contractor and subcontractor chain is then created where the contractor/subcontractors have seven days to either dispute or pay their subcontractors. This hierarchal tethering ensures subcontractors are then responsible to pay additional subcontractors within 7 days.10
A proper invoice must be issued "on a monthly basis, or as specified by its contract",11 and cannot be made subject to any requirement for prior verification of the construction work.12
A Proper Invoice must include the following information:13
- the date of the invoice and the name, street and mailing address, telephone number and email address of the contractor that performed the construction work;
- the period during which the materials or services were supplied;
- the contract number or other authorization under which the materials or services were supplied;
- a description, including the quantity, if applicable, of the materials or services supplied;
- the amount payable for the services or materials supplied and the payment terms; and
- the name, title, street and mailing address, telephone number and email address of the person to which payment must be made.
Parties can add to the requirements for a proper invoice under their contract.14
Because the legislated payment timelines depend on a proper invoice being issued, subcontractors have a legislated right to request and be provided with the date a proper invoice was submitted.15
Once a proper invoice has been issued, the only mechanism to avoid having to pay a contractual counter party within the timelines stipulated by the Federal Act is to issue a notice of non-payment within the required timelines, specifying the work covered by the notice of non-payment, the disputed amount, and the reasons for non-payment.16
What is Adjudication?
Compliance with the Federal Act is self-policing. Contractors and subcontractors who have not been paid are provided the right to refer disputes over non-payment to adjudication: a form of expedited, and interim binding dispute resolution. Construction adjudication is relatively fast and informal. It is designed on the premise of pay now, argue later.17
Adjudication is considered interim binding because it must be complied with (and can be enforced as an order of the Court) unless and until a court or arbitrator hears and determines the dispute.18
What is the Adjudication process?
Adjudication under the Federal Act must be commenced no later than 21 days after the latter of a certificate of completion of the project being issued, or expiry of the time limit for payment under the last proper invoice that the contractor or subcontractor's work covered.19 Once commenced, Adjudicators have discretion to control the adjudication process.
Adjudications are started by issuing a notice of adjudication setting out the parties to the dispute, the amount requested to be paid, and a brief description of the dispute.20 The notice of adjudication must be provided to the party that is supposed to pay it under contract and the Adjudicator Authority (discussed below). The following steps and timelines are prescribed by the Regulations once a notice of adjudication is served:
|
Step |
Relative timing under Regulations |
Days from Request for Adjudication |
|
Party agreement to joint appointment of adjudicator |
4 business days after they day the request for adjudication is received.21 |
4 business days |
|
Adjudicator acceptance of nomination |
4 business days after the request for adjudication.22 |
4 business days |
|
Adjudicator Authority appointment of adjudicator |
5 business days after the appointment request is received.23 |
5 business days |
|
Adjudicator Authority informing parties of adjudicator appointment and contact information |
2 business days of adjudicator appointment.24 |
7 business days |
|
Document submission to adjudicator |
5 business days after adjudicator appointment.25 |
10 business days |
|
Respondent's response |
20 business days after claimant's submission.26 |
30 business days |
|
Adjudicator's determination |
20 business days after Response Submission (or timeline to submit) - can be extended by adjudicator for 5 days, longer with consent of parties.27 |
50 business days |
Adjudicators are empowered to, among other things, decide issues of
fact including by drawing inferences based on the conduct of the
parties.28 If the parties provide consent, the
adjudicator may make site visits to the areas in dispute and carry
out tests or experiments. Despite this wide ranging ability, most
adjudications under similar statutory regimes take place entirely
in writing. The process does not depend on mutual consent, and may
continue in the absence of a responding party.
Who Administers Adjudications?
Canada Dispute Adjudication for Construction Contracts ("CanDACC") has been appointed as the Adjudicator Authority,29 responsible for administering the adjudication dispute procedure and is to ensure that adjudicators are trained, certified, and adhere to a code of conduct.30CanDACC is run by the same group that is responsible for managing the construction adjudication process in Ontario, operating in that capacity as "ODACC".
Who can be an Adjudicator?
Adjudicators must be accredited with CanDACC. To be CanDACC accredited, individuals must have at least 10 years of relevant working experience in construction, and attend a CanDACC orientation program, as well as having not been convicted of an indictable offence or be an undischarged bankrupt.31 Adjudicators appointed for particular disputes must also have the appropriate security level of clearance to address the dispute.32
Adjudicators are anticipated to come from a similar set of background as those appointed by ODACC which include engineering, architecture, project management, quantity surveying, and law.33
How can we help you?
McCarthy Tétrault has a team of experienced and knowledgeable construction lawyers who can help you navigate the legal landscape created by the Federal Act. We can assist you with:
- Reviewing and revising your contracts to ensure they are compliant with the Federal Act and its regulations, and help to streamline your processes in the new legislative environment;
- Advising regarding payment review and approval processes, and file management and documentation practices, to best equip your team to meet the deadlines and obligations under the Federal Act;
- Representing you in any payment disputes that may arise under the Federal Act, and assisting you with the adjudication process or any other dispute resolution mechanisms, including any challenge or enforcement processes;
- Keeping you updated on any developments or changes in the law or practice relating to the Federal Act and its application
Footnotes
1. Federal Prompt Payment Act, SC 2019, c 29, s 387. [Federal Act]
2.The Federal Act received royal assent on the 21st of June, 2019 and officially came into force on December 9, 2023.
3. Federal Act, s. 2(1).
4. Federal Real Property and Immovables Act, SC 1991, c. 50. s.2.
5. Federal Real Property and Immovables Act, SC 1991, c. 50. s.2.
6. Federal Act, s. 6(1)(&(2).
7. Federal Act, s. 8(1)&(2).
8. Federal Act, s 9(3).
9. FederalAct, s 9(2).
10. Canada Gazette, Part I, Volume 157, Number 8: Federal Prompt Payment for Construction Work Regulations (Dispute Resolution). [Dispute ResolutionRegulations], at para 11.
11. FederalAct, s 9(1).
12. Federal Act, s. 9(4).
13. Dispute ResolutionRegulations.
14. Regulations, s. 2.
15. Federal Act, s. 9(5).
16. Federal Act, s. 13.
17. See, for instance, RHP Merchants And Construction Ltd v Treforest Property Company Ltd [2021] EWHC B40 (TCC) at paras 17 and 18; see also: SOTA Dental Studio Inc. v. Andrid Group Ltd., 2022 ONSC 2254 at para 9.
18. Federal Act, s. 18(2), and 19(1),(2), and (3).
19. Federal Act, s 16(2).
20. Dispute Resolution Regulations, s. 16(3).
21. Dispute Resolution Regulations, section 13(1).
22. Dispute Resolution Regulations, section 13(2).
23. Dispute Resolution Regulations, section 15(3). Note that the Adjudicator Authority must inform parties of the date of adjudicator's appointment and their contact information within two working days of appointment.
24. Dispute Resolution Regulations, section 15(3).
25. Dispute Resolution Regulations, section 16.
26. Dispute Resolution Regulations, section 18.
27. Dispute Resolution Regulations, section 22(1)&(2).
28. Canada Gazette, at para 20.
29. Construction Adjudication and CanDACC Orientation Program, at para 2.
30. Canada Gazette, at para 15.
31. Dispute Resolution Regulations, s. 5.
32. Ibid.
33. ODACC 2022 Annual Report.
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