Significant changes to Alberta's Builders' Lien Act came into effect this week. The major changes, introduced by Bill 37 Builders' Lien (Prompt Payment) Amendment Act, 2020, include:
- Renaming the Builders' Lien Act to the Prompt Payment and Construction Lien Act;
- Setting prompt payment timelines;
- Extending timelines for registering liens;
- Mandatory release of holdbacks; and
- Increased access to information.
Bill 37 was introduced with the aim of reducing the need for liens and court actions, unlocking cash flow, and providing greater certainty to Alberta's construction industry. In recognition of these new intentions, Bill 37 changed the name of the Builders' Lien Act to the Prompt Payment and Construction Lien Act. Bill 37 was passed on November 26, 2020 and, by Order in Council dated February 25, 2022, proclaimed to come into force on August 29, 2022.
Below is a summary of some of these major changes.
1. Prompt Payment Timelines
The new rules under the Prompt Payment and Construction Lien Act (the "Act") sets strict timelines for the issue of invoices and payments to contractors and subcontractors. Contractors are required to issue a "proper invoice" to project owners at least every 31 days and, subject to this 31-day limitation, the owner and contractor may agree to specific terms as to when such proper invoices may be delivered. The Act defines "proper invoice" and sets out certain information that the proper invoice must include in section 32.1(1).
After receiving a proper invoice, the owner must pay the amount payable to the contractor within 28 days. Once the contractor has received payment from the owner, or a subcontractor has received payment from the contractor, the contractor or such subcontractor have seven days after receiving payment to pay their respective subcontractors. Interest will accrue for all late payments at the rate specified in the contract between the parties or, if no rate is specified, at the current rate provided in the Judgment Interest Regulation. The current interest rate provided in the Judgment Interest Regulation for the period from January 1, 2021 to December 31, 2022 is 0.2% per year.
In order to dispute all or a portion of the amount owing under a proper invoice, a project owner must deliver a notice of dispute (the "Owner's Notice of Dispute"), in the form that is provided in the Prompt Payment and Construction Lien Forms Regulation (formerly, the Builders' Lien Forms Regulation), to the contractor within 14 days of receiving the invoice. The Owner's Notice of Dispute must specify the amount being disputed and the reason payment is being contested.
If an owner does not pay all or a portion of the proper invoice, the contractor is still required to pay each subcontractor the amount due to them no later than 35 days after giving the proper invoice to the owner. The requirement to pay each subcontractor does not apply if the contractor has delivered to each subcontractor (1) a notice of non-payment (the "Contractor's Notice of Non-payment"), (2) an undertaking to refer the matter to adjudication in accordance with Part 5 – Dispute Adjudication of the Act, and (3) a copy of the Owner's Notice of Dispute, if applicable. The Contractor's Notice of Non-payment must be provided to each subcontractor either within seven days of receiving the Owner's Notice of Dispute or, if no Owner's Notice of Dispute was provided but the proper invoice was not paid or the contractor has other reasons for the non-payment of the amount due to such subcontractor, then before the expiry of the 35 day period after the delivery of the proper invoice to the owner. The Contractor's Notice of Non-payment must be in the form prescribed by the Prompt Payment and Construction Lien Forms Regulation and must set out the amount that is not being paid and the reasons for non-payment.
In a process that is almost identical to that for a contractor for the non-payment by an owner, if a contractor does not pay all or a portion of the amounts owing to a subcontractor, the subcontractor is still required to pay each of its respective subcontractors the amount due to them no later than 42 days after the contractor gave the proper invoice to the owner. The requirement of a subcontractor to pay each of its subcontractors does not apply if the subcontractor has delivered to each subcontractor (1) a notice of non-payment (the "Subcontractor's Notice of Non-payment"), (2) if the non-payment by the sub-contractor is not a result of non-payment by the owner, an undertaking to refer the matter to adjudication in accordance with Part 5 – Dispute Adjudication of the Act, and (3) a copy of any notices of dispute or non-payment, if applicable. The Subcontractor's Notice of Non-payment must be provided to each subcontractor either within seven days of receiving the Contractor's Notice of Dispute or, if no Contractor's Notice of Dispute was provided but the proper invoice was not paid or the subcontractor has other reasons for the non-payment of the amount due its respective subcontractors, then before the expiry of the 42 day period after the delivery of the proper invoice to the owner. The Subcontractor's Notice of Non-payment must be in the form prescribed by the Prompt Payment and Construction Lien Forms Regulation, which form is titled Subcontractor's Notice of Non-payment Where Contractor Does Not Pay, and must set out the amount that is not being paid and the reasons for non-payment.
A contractor who receives an Owner's Notice of Dispute must advise its subcontractors of such without delay and a subcontractor who receives a Contractor's Notice of Non-payment must advise its respective subcontractors of such without delay.
2. Timelines for Registering Liens
Bill 37 has increased the filing periods and the minimum amount required to file a lien. Previously under the Builders' Lien Act, contractors and subcontractors who were owed at least $300 had 45 days to register a lien against a construction project after they have completed work or provided materials for such project.
The Act now provides that contractors and subcontractors who are owed at least $700 or more now have, in most cases, 60 days to register a lien. A lien for materials in respect of improvements related to the furnishing of concrete as a material or work done in relation to concrete may register a lien within 90 days from the completion of such services. Liens in respect of improvements to an oil or gas well or well site may still be registered within 90 days of such services.
3. Mandatory Release of Holdbacks
The Act continues to require that an owner must retain a holdback in the amount of 10% of the value of the work actually done and the materials actually furnished. In most cases, this amount must be retained for a period of 60 days following the date of issue of a certificate of substantial completion or, in situations where a certificate of substantial completion is not issued, the date of completion of the contract. This period is 90 days for projects related to improvements to an oil or gas well or well site. In addition, the new changes to the Act require that, in relation to improvements primarily related to the furnishing of concrete as a material or work done in relation to concrete, the amount must be retained for a period of 90 days.
Further, the Act now contains mandated progressive release of the amounts retained. Progressive release is required when the value of a contract exceeds $10,000,000 and has a completion schedule of more than one year and there are no outstanding liens in respect of the contract. The Prompt Payment and Adjudication Regulation provides that, where the contract does not specify a phased payment, the partial release of the amounts retained must be made on an annual basis. For contracts that do not fall within the above requirements, the release of the holdback amount will continue to be contingent on the certificate of substantial performance or completion of the project and there being no liens registered against the project.
4. Access to Information
The Act also contains expanded rights to information and allows a lienholder, a beneficiary of a trust, or a contractor or subcontractor currently working under a contract on a project to make a request at any reasonable time for production of the applicable contract or for a statement of the state of accounts which contains all of the information as prescribed in the regulations. If such a demand for information is not met within 6 days, and the requesting party suffers a loss as a result, the owner, contractor or subcontractor, who was required to provide such information, is liable for such requesting party's loss.
Conclusion
It is important that all parties involved in the construction industry consider these requirements both in their billing and bill payment practices.
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.
