Prompt Payment + Consultants: What You Need to Know
March 2022 - 4 min read
The upcoming changes to Alberta's construction law regime should be top of mind for all parties in the construction industry, with both the Prompt Payment and Construction Lien Act (the "PPCLA") and the Prompt Payment and Adjudication Regulation (the "Regulation") coming into force on August 29, 2022. The PPCLA establishes mandatory "prompt payment" of invoices within prescribed deadlines as well as an adjudication mechanism to resolve disputes efficiently.
Consultants, such as architects and engineers, are an often overlooked part of the construction industry concerning lien claims. Does this new legislation apply to them? In what capacity?
Consultants are Subject to the New Act
Under the existing Builders' Lien Act (the "BLA"), many parties operated under the assumption that the BLA does not apply to consultants. As a result, owners would not retain a holdback from consultants (as otherwise required under s. 18(1) or 23(1) of the BLA), and consultants would rarely register liens for unpaid invoices.
As discussed further below, this approach is incorrect for consultants performing services directly related to the process of construction. Since the BLA did not refer to consultants and professionals, the common assumption was that consultant services were not captured in the BLA.
In contrast, the PPCLA makes it clear that it applies to engineers and architects. Section 1.1(1) of the PPCLA states that it may apply to a prescribed class of professionals acting in a consultative capacity, in accordance with any regulations passed. The Regulation specifies in section 35 that the PPCLA applies to the following persons contracted to act in a consultative capacity in respect of an improvement:
- a regulated professional engineer; and
- a regulated professional architect.
There is no carve-out that states that only some of the PPCLA applies to engineers or architects. As such, all of the PPCLA, including mandatory prompt payment from owners, applies to engineers and architects for services performed in respect of an improvement.
What Types of Services Can be Liened?
While the PPCLA and the Regulation both provide that this legislation applies to engineers and architects, it will be open to interpretation whether all their services are subject to the PPCLA, in particular pre-construction services.
The case law under the BLA has confirmed that certain engineer/architect services can be liened. Helpful summaries of which services can be liened and why are set out in Ethos Engineering Inc v Fortis LGS Structures Inc, and J.K. Engineering Ltd. v. Red Quest Developments Ltd.
The main principles from these prior cases are:
- the main factor in determining whether engineer/architect services can support a lien is whether the service performed was an integral and necessary part of the actual physical construction of an improvement;
- preliminary services performed in advance of actually constructing an improvement are not necessarily subject to the BLA;
- services performed that are more specifically related to construction are subject to the BLA, even if the project does not proceed, such as an architect or engineer preparing detailed drawings for a project which is never built; and
- services with respect to rezoning, subdivision, and other development issues do not give rise to a valid lien, because those services are not sufficiently connected to the construction of an improvement.
At minimum, all of the above services that have led to a valid lien under the BLA will still lead to a valid lien under the PPCLA. The rationale behind which engineer/architect services could bring about a valid lien claim is based on the definition of "improvement" in section 1(d) and the wording of section 6. Both of these sections are unchanged from the BLA into the PPCLA.
It is unclear whether the previous case law holding that services with respect to rezoning, subdivision and development issues will give rise to a valid lien. While case law previously disallowed such lien claims because the services were not sufficiently connected to the construction of an improvement, section 35 of the Regulation states that the PPCLA applies to engineers and architects providing services "in respect of an improvement."
In other words, there is no specific requirement in the PPCLA or Regulation that the professional services are provided for the construction of an improvement. As the definition of an improvement includes anything "intended to be constructed, erected, built, placed, dug or drilled," arguably, the scope of an engineer/architect lien will be broader under the PPCLA.
Next Steps for Owners + Consultants
For owners, the most important thing to remember is to retain the 10% holdback on all payments to consultants, as required by s. 18(1) or 23(1) of the PPCLA. Further, the strict payment deadlines under the PPCLA must also be adhered to for any consultant invoices.
For consultants, the main change under the PPCLA is to ensure that invoices to the owner are "proper invoices" under section 32.1(1) of the PPCLA, discussed further here. It is only upon receipt of a proper invoice that payment from the owner is triggered.
For any questions concerning the impact of the PPCLA on architects, engineers, or the construction industry generally, please contact Anthony Burden in Calgary or Jeremiah Kowalchuk in Edmonton.