On October 21, Alberta introduced Bill 37: The Builders' Lien (Prompt Payment) Amendment Act, 2020 proposing changes to Alberta's Builders' Lien Act (the Act), including renaming it the Prompt Payment and Construction Lien Act (the Bill). The Bill passed second reading in the Alberta legislature on October 28 and is expected to become law in the summer of 2021.
The Bill seeks to modernize the Act to respond to criticism from stakeholders. Broadly speaking, the Bill is intended to speed up payment and dispute resolution in the construction industry, reflecting changes previously put in place federally and in Saskatchewan, Ontario, Quebec (by way of pilot project), and Nova Scotia. Only the Ontario and Quebec changes are currently in effect.
Prompt payment
Bill 37 will require owners, contractors, and subcontractors to complete payment within 28 days of receiving a “proper invoice” (except where a notice of dispute has been issued within 14 days of receipt), regardless of whether they have received payment from those higher up in the construction pyramid. This would invalidate “pay-when-paid” clauses in construction contracts, which are expressly prohibited by the new amendments, placing greater risk on general contractors.
This is at odds with other jurisdictions, where the legislation mandates payment to subcontractors based on the date they receive payment, rather than the date of invoicing. In Ontario, Saskatchewan and federally, owners must pay contractors within 28 days of receiving a “proper invoice,” but each subsequent contractor has an additional seven days from receipt of payment to pay subcontractors down the line. Similarly, in Quebec, the owner must make payment by the last day of the month in which it received a payment application, but each subsequent contractor receives an additional five days after payment to settle its own invoices. Nova Scotia has proposed a similar system, but the payment deadlines have not yet been established.
To be a “proper invoice,” an invoice must satisfy nine requirements set out in the Bill, such as including a description of the work performed and the authorization for the completion of the work. Until the nine requirements are satisfied, the legislated timelines for payment and dispute adjudication will not start.
Adjudication scheme
The Bill proposes an adjudication scheme to resolve construction disputes, mirroring amendments elsewhere. Ontario and Saskatchewan provide for a broad range of disputes that can be referred to adjudication, including service valuation, change orders and non-payment, while Nova Scotia, Quebec and the federal government permit adjudication only for claims of non-payment. While the Bill does not specify what types of disputes can be referred to adjudication, we anticipate these will be outlined in subsequent regulation.
Further, Ontario, Saskatchewan, Quebec and the federal government set out procedures for giving notice of adjudication, calculating adjudication fees and appointing an adjudicator. The Bill does not address these points, which we similarly anticipate will be determined by subsequent regulation.
Other amendments
The Bill extends the lien filing periods from 45 to 60 days generally, and from 45 days to 90 days for the concrete industry. It also increases the minimum amount owed that can be subject to a lien from $300 to $700.
Additionally, the Bill will improve stakeholder access to payment information. Currently, a lienholder is the only party that may demand access to any contracts and statements of accounts between owners, contractors, and subcontractors. Under the new legislation, this right will be extended from lienholders to all trust beneficiaries, contractors, and subcontractors.
The Bill will also permit holdbacks on liens to be released intermittently for multi-year projects once certain milestones are achieved. Specifically, the holdback can be released when:
- the terms of release are set out in contract;
- the project extends for longer than one year;
- the contract price is greater than the amount prescribed in upcoming regulations; and
- there are no outstanding liens in respect of the contract.
Interestingly, the Bill does not address:
- the quantum of the 10% percent holdback, which has been criticized as insufficient; or
- the trust provisions under the Act, which are narrower than in other jurisdictions.
Transition periods
When the Bill comes into force, any pre-existing contract or subcontract will be governed by the former provisions until that contract is expired, terminated, or amended. Any contract or subcontract postdating the coming into force of the legislation will be subject to the new amendments.
This is in contrast to Ontario and Saskatchewan legislation, where the previous legislation will continue to apply to any subcontracts entered into after the amendments have come into force, so long as the parent contract predates the amendments. The federal legislation similarly provides a one-year grace period to contracts predating the amendments.
Takeaways
The Bill brings Alberta's lien legislation into closer alignment with its counterparts in other jurisdictions. The Bill will require important changes to standard form contracts and policies and the procedures for handling process payments and receivables should be reassessed.
Our construction group in Calgary is monitoring the progress of these developments and is well positioned to consult with existing or prospective clients who may be concerned about the implementation of Bill 37 in Alberta and its effect on their businesses and operations.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
nortonrosefulbright.com
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.
