Prompt Payment in Alberta: One Big Step Closer
October 2020 - 3 min read
On October 21, 2020, Bill 37: Builders’ Lien (Prompt Payment) Amendment Act, 2020 passed First Reading in the Alberta Legislature. Bill 37 would introduce significant changes to the Alberta Builders’ Lien Act, particularly by introducing statutory deadlines on payments in the construction chain, known commonly as “prompt payment”, and by establishing an “adjudication” mechanism to deal with disputes during the life of a project.
Background to Prompt Payment
The concept of prompt payment is not new. It has been in place in the UK for many years. Elsewhere in Canada, it was first introduced in Ontario via amendments to their Construction Act. Several other provinces have either tabled or passed legislation on prompt payment, or are in the process of doing so.
Put simply, the goal of prompt payment is just that: to ensure payments on construction projects are made quickly to ensure parties are paid for their work. This prevents potential work stoppages where a party is put between a rock and a hard place in deciding whether to keep working with long-outstanding accounts receivable, or stop work in protest and risk the overall progress of their work and the project in general.
Going hand-in-hand with prompt payment is the concept of “adjudication.” Also originating in the UK, adjudication allows parties to a construction project to submit a dispute for resolution while the project is ongoing. Timelines are generally tight, with the idea being that an adjudication decision is rendered mid-project, to allow the parties to continue working. The alternative is for the parties to dig in their heels and engage in litigation or arbitration.
Alberta’s Prompt Payment Initiative
Service Alberta expressed an intention to proceed with prompt payment legislation in late 2019. Since that time, they have moved forward quickly to obtain stakeholder feedback and prepare draft legislation. This has resulted in Bill 37, the text of which can be found here.
The Bill has passed First Reading in the Legislature, paving the way for it to eventually become law. Further changes will almost certainly be introduced before the Bill receives Royal Assent, but the general framework is unlikely to change.
The main amendments to the existing Builders’ Lien Act based on the current text of Bill 37 would be as follows:
- the Builders’ Lien Act would be renamed the Prompt Payment and Construction Lien Act;
- an owner must retain the major lien fund for 90 days for “improvements primarily related to the furnishing of concrete as a material or work done in relation to concrete” and the corresponding deadline to register a lien for concrete work is extended from 45 days to 90 days;
- “pay when paid” clauses are of no force and effect (i.e. a clause providing that the general contractor does not have to pay a subcontractor until the general contractor is paid by the owner, cannot be enforced);
- any party in the construction chain must make payment within 28 days of receipt of a “proper invoice”, regardless of the recipient’s place in the contractual chain;
- any party in the contractual chain may request a copy of the prime contract or other contracts in the contractual chain, and the associated contract accounting. Currently, only a lienholder may make such a request for the prime contract and contract accounting;
- any “prescribed matter” may be referred to adjudication. The Regulations would need to set out what prescribed matters are eligible for adjudication;
- adjudication decisions are final and binding on the parties, but are subject to judicial review;
- the minimum amount of a lien is increased from $300 to $700; and
- the default timing to register a lien (other than concrete work, or work on an oil and gas well site), is extended from 45 days to 60 days.
At this point, no Regulations have been drafted as part of Bill 37. The Regulations would detail which matters can be heard via adjudication, the timing for steps in adjudication, and any further requirements not set out within the Prompt Payment and Construction Lien Act itself. It will be interesting to see if prompt payment and adjudication applies uniformly across all sectors of the construction industry, or if some carve-outs are ultimately made.
However, it is clear that the intent of Bill 37 is to provide for mandatory prompt payment of proper invoices. This would address industry concerns that the average invoice remains unpayable often far in excess of the current 45-day lien registration deadline. By introducing a 28-day payment deadline coupled with a minimum 60-day lien registration deadline, this should ensure that parties are not constantly waiting past their lien deadline to get paid for undisputed work.
Field Law will continue to monitor any developments with Bill 37, and provide updates as they become available.