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Prompt payment legislation in British Columbia: Long overdue?

prompt payment

Trade contractors often face significant delays in payment on construction projects, as funds slowly wind their way down the “construction pyramid” from developers to general contractors to trade contractors. The proliferation of “pay-when-paid” clauses in contractor-subcontractor agreements in recent years (which we have written about here), has further increased the time lag for many trade contractors between completion of their work and payment. Such delays can severely restrict trade contractors’ cash flow, and often result in crippling slowdowns on construction projects when builder’s liens are filed.

In response to these concerns, the federal government and several provinces have now each proposed or enacted legislation to create “prompt payment” regimes for construction projects. The various laws all share the feature of setting tight timelines for the payment of trade contractors after their work is completed on a project.

In keeping with this trend, on May 28, 2019, BC Liberal House Leader Mary Polak introduced Bill M-223 (the Prompt Payment (Builders Lien) Act) (hereafter “Bill M-233”) during the most recent parliamentary session of the Legislative Assembly of British Columbia. Bill M-233, if passed into law, will amend the existing British Columbia Builders Lien Act to create prompt payment rules for builders, contractors, and subcontractors.

The prompt payment provisions of Bill M-233 are closely patterned upon the first phase of the new Ontario Construction Act, which took effect July 1, 2018.

The prompt payment process in British Columbia under Bill M-233 would be as follows:

  • A contractor must first provide a “proper invoice” (as defined by Bill M-233) to the owner, which triggers the owner’s payment obligation;
  • The owner is then required to pay the invoice within 28 days, unless it issues a “notice of non-payment” to the contractor in respect of some or all of the amounts payable under the invoice, and which details the reasons for non-payment;
  • Any non-payment notice issued by an owner must be provided to the affected parties, along with reasons for non-payment, within 14 days of the owner receiving the invoice;
  • Upon receiving full payment from an owner after issuing a “proper invoice”, the contractor must either:
    • pay its subcontractors within the next 7 days; or
    • issue its own notice of non-payment to the subcontractor.
  • If the owner does not pay the portion of a “proper invoice” from a contractor that relates to a particular subcontractor, the contractor still must either:
    • pay that subcontractor within 35 days of delivering the invoice; or
    • deliver its own non-payment notice to its subcontractors, and also undertake to refer the matter to “adjudication” (as described below) within 21 days of delivering the notice.
  • Similar prompt payment rules apply to subcontractors paying their own subcontractors.

We note that it remains unclear under Bill M-233 whether contractors or subcontractors in British Columbia will still be able to rely on “pay-when-paid” clauses under the proposed law. Neither Bill M-233 nor the Ontario Construction Act deal explicitly with the issue of “pay-when-paid” clauses, and whether the prompt payment regimes they establish can be contracted out of by the parties to a construction contract. For practical purposes, however, it appears likely that these regimes will preclude any reliance on such clauses, since a contractor or subcontractor under either regime is ultimately required to either pay their subcontractor within a prescribed time, or refer the matter for adjudication (after which a payment order may be made).

Adjudication

Bill M-233 contains references to the “adjudication” of disputes, but the bill (in its current form) does not describe a specific dispute resolution process by which this is to occur.

However, given the high degree of similarity between the draft provisions of Bill M-233 and the first phase of the new Ontario Construction Act, is likely that any “adjudication” process described in future revisions of Bill M-233 will be similar to the adjudication process created by the second phase of the new Ontario Construction Act.

This second phase of the Ontario legislation, which is set to take effect in Ontario in October of 2019, will create a mandatory “interim” adjudication process for construction disputes. A party to a construction contract will be able to refer issues regarding payments, valuations, change orders, costs, certification issues and other matters to an adjudicator for determination.

These adjudications are intended to be resolved faster than the traditional court process, with disputes being heard in a matter of weeks, or months. Further expediting the process, the binding decision issued by an adjudicator cannot be appealed directly – it may only be subject to “judicial review” by a court. The second phase will also entail the creation of a new provincial agency made up of adjudicators with experience in the construction industry.

Other jurisdictions in Canada, and globally

This model of rapid “interim adjudication” for construction disputes, outside the traditional court system, was initially introduced in the United Kingdom over 20 years ago, and has since been praised for how effectively and efficiently it resolves disputes. In the two decades following its introduction in the UK, many common law countries, and most US states, have adopted some form of prompt payment legislation for their construction industries.

Accordingly, several other provinces in Canada are currently considering, or have enacted, their own prompt payment regimes:

  • In Saskatchewan, Bill 152The Builder’s Lien (Prompt Payment) Amendment Act, 2018, which is patterned closely on the prompt payment and adjudication provisions in the new Ontario Construction Act, received royal assent and became law on May 15, 2019;
  • In Nova Scotia, Bill 119, which amends the provincial Builders’ Lien Act, also mirrors the prompt payment regime created by the Ontario Construction Act, and permits the provincial government to establish an “adjudication” procedure by way of future regulations. Bill 119 received royal assent and became law on April 12, 2019;
  • Quebec has a pilot project currently underway which flows from the provisions of Bill 108 – An Act to facilitate oversight of public bodies’ contracts and to establish the Autorité des marchés publics, which was adopted in December 2017. The pilot project will see the adoption of “prompt payment” language in certain public construction contracts, along with the creation of a dispute resolution process using an adjudicator or expert intervenor for disputes arising under those contracts. It is intended that the project will conclude with the adoption of a regulation which will apply to all public contracts;
  • In New Brunswick, the Legislative Services Branch of the Office of the Attorney General has published two sets of Law Reform Notes on the subject. Law Reform Notes #40 was released in December 2017, and sets out the need for the modernization of lien legislation. Law Reform Notes #41, published May 2018, addresses specific concerns regarding prompt payment rules and describes an expedited adjudication process for construction disputes;
  • The Manitoba Law Reform Commission has published The Builders’ Liens Act: A Modernized Approach, which provides a blueprint for new lien legislation that would establish a prompt payment regime similar to that in Ontario. A bill to establish such a regime, titled The Prompt Payments in the Construction Industry ActBill 245, was introduced in the provincial legislature and passed first reading on June 3, 2019.

Following the same path, the Canadian Senate recently introduced and passed a private members’ bill, Bill S-224, the Canada Prompt Payment Act, with respect to federal public construction projects. Bill S-224 has many similarities to Ontario’s new Construction Act. However, the House of Commons did not pass Bill S-224 before adjourning for the summer, and the proposed legislation will now need to be re-introduced in the next Parliamentary session after the federal election in October.

We note the federal government has recently engaged in significant consultation regarding the new legislation with stakeholders across Canada, however. Based on the federal government’s recent public announcements, these consultations will likely eventually result in some form of prompt payment and adjudication legislation.

With respect to the situation in British Columbia, it is too soon to tell whether Bill M-233 will become law in its current form, or perhaps a revised form at some future date. The British Columbia Law Institute has recently initiated a Builders Lien Act Reform Project, which is a process that often influences and precedes the implementation of new provincial legislation. While the Institute has not yet published a final report with recommendations, given the international and domestic trend, and the recent introduction of Bill M-233, some form of prompt payment legislation in British Columbia in the coming years seems highly likely, if not inevitable.

By Michael Larsen and Scott Lamb, Clark Wilson

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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