Bill 37: New Legislation for Prompt Payment and Builders' Liens

On October 21, 2020, the Minister of Service Alberta tabled Bill 37, which will be known as the Prompt Payment and Construction Lien Act  (the "Act"). The new Act replaces the current Alberta Builders' Lien Act, and is expected to come into force in July 2021. The main changes in the Act include prompt payment requirements, the introduction of a formal adjudication process, new lien registration and holdback periods, and increased access to information. Regulations under the Act have not yet been released. It is expected that the regulations will provide further detail and guidance with respect to the application of the Act.

This legislation is a substantial change for the construction industry, and provides the most significant amendments to the Alberta Builders Lien Act  in 20 years. Similar legislation was implemented in Ontario in 2019, and many other provinces are following suit. For example,  the Prompt Payment (Builders Lien) Act,  or Bill M-223 was introduced in the BC Legislative Assembly in May 2019.

As Alberta transitions to this new Act, contracts or subcontracts that are entered into after  the new Act comes into force will be governed by the new Act, while all contracts entered into before the new Act comes into force will be governed by the old Alberta Builders' Lien Act until expired, terminated or amended.

Prompt Payment

Section 14 of Bill 37 creates a new Part 3, which deals with the issue of "prompt payment" and, more specifically, the process and timing of payment on construction projects in Alberta.

The payment deadline in the new Act is meant to fix the systemic problem of contractors facing long delays in receiving payment for work completed on a construction project. This has been a significant issue in the construction industry across Canada for many years, and provinces are responding by legislating specific payment deadlines. Ontario was the first province to introduce such legislation and now Alberta is following suit. The old Alberta Builders' Lien Act  does not contain specific payment timelines. Instead, issues such as payment, invoicing and remedies for late payment, are left to parties to negotiate and set out in their contracts.

Currently, "pay when paid" clauses allow contractors to withhold payment to subcontractors until the contractor has received payment from the owner. This will be prohibited for new contracts entered into after the new Act comes into force.

Proper Invoices

Bill 37 provides safeguards to ensure prompt payment on construction projects. One safeguard is the use of "proper invoices".  Bill 37 requires that contractors and subcontractors use proper invoices, the delivery of which will trigger payment deadlines outlined in the Act.

A proper invoice must include specific information, including a description of the work performed, authorization pursuant to which the work was undertaken, the period the work was performed, and a statement that the invoice is intended to be a proper invoice. In addition, proper invoices must be given to an owner at least every 31 days, subject to the regulations and other exceptions.

Payment Deadlines

The payment deadlines in the new Act are triggered when an owner or contractor receives a proper invoice from a contractor or subcontractor.

An owner must pay an invoice within 28 days of receipt of a proper invoice. A contractor must pay its subcontractor within 7 days of receipt of payment from the owner and a subcontractor must pay its sub-sub-contractors within 7 days of receipt of payment from the contractor. This 7-day period will continue to apply down the construction chain.

Finally, interest will begin to accrue at a statutorily prescribed rate on all late payments. This rate will be prescribed in the forthcoming regulations and parties cannot contract out of the statutory rate.

Disputing an Invoice/Notice of Non-Payment

In order to dispute a proper invoice, a party must furnish a notice of dispute in the prescribed form within 14 days of receiving the invoice. The notice of dispute must specify the amount that is being disputed and the reason or reasons the party is contesting payment. If a notice of dispute is not delivered within 14 days of receiving the invoice, the full amount of the invoice must be paid at the end of the 28-day payment period. Any amount that is not in dispute also must be paid by the end of the 28-day period.

Subcontractors will not be directly affected when a notice of a dispute is provided by an owner unless the contractor provides a notice of non-payment to its subcontractors within 7 days after receiving a notice of dispute from the owner or, if no notice was given by the owner, within 35 days of providing the proper invoice to the owner.

More specifically, if the owner pays for only a portion of the amount payable under a proper invoice, the contractor will need to pay its subcontractors on a proportionate basis within 7 days after receiving payment, based on the portion paid or disputed by the owner. If the contractor does not provide a notice of non-payment in the prescribed form and within the prescribed time to its subcontractor, it must pay each subcontractor the amount payable for its work that was included in the proper invoice, even if it did not receive full payment from the owner.

In addition, a contractor must give an undertaking to its subcontractor to refer the matter to adjudication no later than 21 days after giving the notice of non-payment to the subcontractor.

Adjudication Process

The new legislation will establish a final and binding adjudication scheme to resolve payment disputes. Currently, there is no formal adjudication process in the construction industry in Alberta. Payment disputes are routinely resolved through the courts, which can be a lengthy and costly process. The adjudication scheme in the Act will supersede any adjudication procedures set out in a contract.

There are many unknowns with respect to how adjudication will work. The regulations will likely clarify many details of the adjudication process, such as, who bears the cost of adjudication, timelines for the adjudication process, how adjudicators will be appointed, and the range of disputes that may be referred to adjudication. We expect the Minister of Service Alberta to appoint Authorized Nominating Authorities (ANAs) in the near future. ANAs will have the authority to appoint qualified, third-party adjudicators to resolve payment disputes. ANAs will assign disputes to adjudicators, whose judgments will be final and binding on all parties, subject to an application for judicial review.

The final and binding nature of the adjudication process differs from other jurisdictions, including Ontario, where adjudicators' decisions are interim, unless the parties agree otherwise. Some jurisdictions, like Ontario and Saskatchewan, permit the adjudication of a broad range of disputes, including service valuation, change orders and non-payment. Other jurisdictions, such as Nova Scotia and Quebec, permit adjudication only for claims of non-payment.

It is unclear how the adjudication process will work in conjunction with the enforcement of liens, which will continue to be enforced by starting a court action.

Holdbacks

Currently, a 10% holdback is required for all construction projects to protect against lien claims being filed with the Land Titles Office. Holdbacks are normally released 45 days after the completion of work, but they can also be held longer.

The new legislation will require owners to release holdbacks at pre-set times, without risk to a project owner. The use of pre-set release points, whether annually or as pre-determined project milestones are reached, will take away the necessity of retaining holdbacks to protect against liens for long periods or to use lien holdbacks for non-permitted purposes.

Specifically, the holdback must be released if:

  1. The terms of the release are set out in the contract;
  2. The project extends for longer than one year;
  3. The contract price is greater than the amount prescribed in upcoming regulations; and
  4. There are no outstanding liens in respect of the contract.

The holdback amount will remain the same at 10%.

Builders' Lien Registration

Currently, contractors and subcontractors who are owed at least $300 have 45 calendar days after they have completed work, or provided materials, to file a lien against a construction project.

Once the Act is in force, the lien filing period will increase to 60 calendar days for standard construction jobs and 90 days for registering liens on work and materials related to the production and provision of concrete, due to the special nature of working with concrete and the time required for concrete to properly cure. The lien filing period for improvements to oil and gas wells and well sites will remain the same at 90 days.

The minimum amount for filing a lien will increase from $300 to $700.

Section 33

Pursuant to the current Alberta Builders' Lien Act, s. 33 only allows a lienholder to access contracts and statements of account with respect to a specific construction project.

In accordance with the new Act, s. 33 allows a lienholder, a beneficiary of a trust, or a contractor or sub-contractor currently working under a contract on a construction project to request access to contracts and statements of account. This way, the involved parties will be able to access important information throughout the project, leaving little room for surprise. The time period to respond to a request will remain the usual 6 days.

Future Updates

The Construction Law group at Whitelaw Twining will continue to advise and provide timely updates as regulations are finalized that will provide further clarity and guidance in the implementation of the Prompt Payment and Construction Lien Act, and as other jurisdictions, including British Columbia, consider implementing a similar scheme.

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.