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Prompt payment and adjudication legislation and the application on AFP projects

By Geoff Stenger, Jason Roth, Parker Mckibbon and Evan Hall, Bennett Jones LLP

 

The Canadian construction and infrastructure sector is currently experiencing major changes due to the introduction of new prompt payment legislation in jurisdictions across Canada. Brought on by industry complaints due to the lack of timely payment requirements and formal adjudication requirements, prompt payment and adjudication legislation is in the process of being implemented, or is already in effect, in a number of Canadian provinces and federally. These changes have had, and will have, a significant effect on Canada’s construction and infrastructure sector. How will these changes impact alternative financed procurement projects and projects procured under a private-public-partnership model (collectively, AFP projects) for infrastructure delivery?

Before addressing that specific question, below is a high-level overview of passed and proposed prompt payment legislation in its current state across Canada.

 

Summary of prompt payment and adjudication legislation across Canada

Ontario is the only common law jurisdiction where prompt payment legislation is currently in force. Quebec’s prompt payment legislation is in force, and it only applies to 180 public works projects that are specified in the Quebec legislation. (Summary of common law jurisdiction legislation on pages 52 and 53.)

 

How will prompt payment and adjudication legislation apply to AFP projects?

The effect of prompt payment and adjudication legislation on AFP projects will be largely dependent on the jurisdictional legislative requirements. While there are certain similarities across Canada, each jurisdiction has its own specific exemptions, requirements and carve-outs. That being said, there are certain requirements in the Ontario Construction Act and in the current version of the Alberta Prompt Payment and Construction Lien Act applicable to AFP projects that are unique compared to projects that do not use AFP delivery models.

Ontario Construction Act

The Ontario Construction Act applies to all projects procured by the Crown, municipalities or broader public sector organizations in Ontario, subject to limited exceptions. These public sector organizations include, but are not limited to: boards, commissions, committees, authorities and organizations that received public funding in the prior fiscal year or are controlled by the Government of Ontario, public utilities, railways, hospitals, post-secondary institutions, and municipalities and local municipal boards. AFP projects involving these public entities, where the public entity is the owner of the premises where the improvement is being undertaken and the private sector partner (or special purpose entity) finances and undertakes the improvement on the public sector entity’s behalf, are subject to certain unique requirements. These requirements are provided in Section 1.1 of the Ontario Construction Act.

First, the prompt payment requirements in Part I of the Ontario Construction Act are not applicable to any portion of a project agreement pertaining to the operation or maintenance of an improvement involving a special purpose entity. This is likely due to the nature of operation and maintenance phases of the AFP model, as at this point in time, the project is already constructed and the special purpose entity is simply operating and maintaining the asset.

Second, there are certain modifications to the adjudication requirements. Specifically, the following matters are not the subject of adjudication under Part II of the Ontario Construction Act:

  • Determinations of substantial completion or substantial performance; and
  • A determination of whether a milestone in relation to the improvement has been reached (if reaching the milestone requires an amount to be paid).

 

Third, the special purpose entity that enters into the AFP form of agreement (i.e. a design-build-finance-operate-maintain project agreement) with the government entity is deemed to be the owner in place of the Crown, municipality or broader public sector organization for the purposes of certain sections of the Ontario Construction Act. Notably, those specific sections govern the determination and rules for substantial performance, expiry of liens and the right to information specific to lien matters, which are specific to the contracts entered into by the “concessionaire” rather than applicable to the public sector owner.

Thus, the prompt payment requirements within the Ontario Construction Act will not limit the governmental authority’s ability to have the private sector finance the project as the main requirements will apply directly to the contract between the concessionaire and the design builder.

These exemptions do not apply to AFP projects undertaken by a private sector owner.

Alberta Prompt Payment and Construction Lien Act

Alberta also has some unique requirements and exemptions for AFP projects.

The Alberta Prompt Payment and Construction Lien Act will not apply to: 1) public works as defined in the Public Works Act (Alberta) (consistent with the original Builders’ Lien Act), which are defined as any construction undertaking and all the works and property acquired for that undertaking pursuant to a contract entered into with the Crown; and 2) agreements to finance and undertake an improvement in which the Crown or a provincial corporation is a party. The legislation also includes language to further exempt parties, agreements and undertakings that will be specified in the regulations, which have not been developed at this time. The authors interpret these exemptions to mean that any type of contract involving the Crown will not be subject to the Alberta Prompt Payment and Construction Lien Act. Thus, under the current drafting of the Alberta Prompt Payment and Construction Lien Act, AFP projects involving the Crown or provincial corporations look like they will be excluded from the legislation. Notably, Alberta Infrastructure falls under the definition of the Crown, meaning that projects being procured by Alberta Infrastructure would not be governed by the Alberta Prompt Payment and Construction Lien Act requirements. These exemptions also differ from the Ontario Construction Act, as it appears that the prompt payment requirements will not apply to contracts between the concessionaire and the design builder, if the project is being procured by the Crown.

While these exemptions exist, the Government of Alberta has stated that it intends to “continue to hold itself to the standards of prompt payment that are proposed in the new legislation.” It is not clear whether this means that contracts involving the Government of Alberta will include prompt payment requirements, but regardless, this will have a material impact on AFP projects.

While the Crown may be exempt from the Alberta Prompt Payment and Construction Lien Act, it appears that the legislation may apply to AFP projects with municipalities and post-secondary institutions, though discussions on how the legislation would apply are still ongoing. Under the current draft of the Alberta Prompt Payment and Construction Lien Act, projects involving municipalities would not be expressly excluded, depending on the context.

Since the legislation has not yet passed and there is no real visibility on the regulations, industry will have to take a wait-and-see approach to assess the impact of prompt payment requirements on AFP projects in Alberta.

  Ontario Alberta Nova Scotia Saskatchewan New Brunswick Federal
Name of
Legislation

Construction
Act, RSO 1990,
c C30 (Ontario
Construction Act).

Prompt Payment and Construction Lien Act, c P-26.4 (Alberta Prompt Payment and Construction 
Lien Act).

Builders’ Lien 
and Prompt Payment Act, 
RSNS 1989, c 277.

Builder’s Lien Act,
SS 1984-85-86, 
c B-7.1.

Construction Remedies Act, SNB 2020, c 29.

Federal Prompt Payment for Construction Work Act, SC 2019, c 29, s 387.

Status of
Legislation

In force.

Received 
royal assent, but
not in force.

Received 
royal assent, but
not in force.

Received 
royal assent, but
not in force.

Received 
royal assent, but
not in force.

Received 
royal assent, but
not in force.

Payment
Timeline

Payment from Owner to Contractor: 28 days after receipt of proper invoice.

-

Payment from Contractor to Subcontractor: seven days after payment received
from Owner.

-

Payment from Subcontractor to Subcontractor: seven days after payment received
from Contractor.

-

Proper Invoices: shall be provided to the Owner on a monthly basis, unless the contract provides otherwise.

Payment from Owner to Contractor: 28 days after receipt of proper invoice.

-

Payment from Contractor to Subcontractor: seven days after payment received
from Owner.

-

Payment from Subcontractor to Subcontractor: seven days after payment received
from Contractor.

-

Proper Invoices: shall be provided to the Owner every 31 days (subject to upcoming regulations).

To be 
determined.

Payment from Owner to Contractor: 28 days after receipt of proper invoice.

-

Payment from Contractor to Subcontractor: seven days after payment received
from Owner.

-

Payment from Subcontractor to Subcontractor: seven days after payment received
from Contractor.

-

Proper Invoices: shall be provided to the Owner on a monthly basis, unless the contract provides otherwise.

To be 
determined.

Payment from Owner to Contractor: 28 days after receipt of proper invoice.

-

Payment from Contractor to Subcontractor: seven days after payment received
from Owner.

-

Payment from Subcontractor to Subcontractor: seven days after payment received
from Contractor.

-

Proper Invoices: shall be provided to the Owner on a monthly basis, unless the contract provides otherwise.

Timeline
to Dispute
Payment

Owner: 14 days after
receipt of proper invoice.

-

Contractor: seven days from receipt of invoice or notice of non-payment from Owner.

-

Subcontractor: seven days from receipt of invoice or notice of non-payment
from Contractor.

Owner: 14 days after
receipt of proper invoice.

-

Contractor: seven days from receipt of invoice or notice of non-payment from Owner.

-

Subcontractor: seven days from receipt of invoice or notice of non-payment
from Contractor.

To be 
determined.

Owner: 14 days afte
receipt of proper invoice.

-

Contractor: seven days from receipt of invoice or notice of non-payment from Owner.

-

Subcontractor: seven days from receipt of invoice or notice of non-payment
from Contractor.

To be 
determined.

Owner: 21 days after
receipt of proper invoice.

-

Contractor: seven days from receipt of invoice or notice of non-payment from Owner.

-

Subcontractor: seven days from receipt of invoice or notice of non-payment
from Contractor.

Summary of
Adjudication
Provision

Adjudication is a
mandatory requirement.

-

Decision rendered
within 
30 days of first
documents received.

Adjudication is not a mandatory requirement.

-

Adjudication
requirements are 
to
be determined.

Adjudication specifics (including whether it is mandatory) shall be specified within the Regulations, which have not been released.

-

Adjudication is only available for non-payment disputes and is not mandatory; all other disputes are referred to the Courts.

Adjudication is a
mandatory requirement.

-

Adjudication is available for any dispute the parties to the adjudication agree to.

-

Decision shall 
be rendered 
within 30 days.

To be determined.

Notice of Adjudication
must be provided within 21 days of dispute.

-

Adjudication requirements are to be determined.

-

Adjudication is only
available for contract
payment disputes.

Changes
to Lien
Mechanics

Builders’ liens can be preserved within 60 days
and perfected within 90 days from date of the certificate
of substantial performance, termination of the contract,
or from the last day that materials or services were provided on the project
or improvement.

-

Minor errors and
irregularities are no
longer fatal.

Liens can now be
registered within 60 days
from the last day materials
or services were provided
for the project or 

improvement generally,
and 90 days from the
last day materials or
services were provided
on the project for 
concrete projects.

No changes 
are applicable 
at this time.

No changes 
are applicable 
at this time.

Liens can be 
registered within 60 days
of a 
certificate of
substantial 
completion, or 
the last day materials or services were provided
on the project
or improvement.

No federal 
lien legislation.

 

How will prompt payment legislation affect the piling industry on AFP projects?

While each common law province will have variations in their legislation, prompt payment requirements will inevitably impact the piling industry as with any subcontractor on an AFP project.

Piling contractors should be mindful of the specific jurisdictional differences for AFP projects, including the modifications in Ontario and the exemptions in Alberta, and should be aware of the payment timelines and dispute timelines under the prompt payment legislation. Thankfully, most of the payment provisions in the prompt payment legislation currently appear to be consistent across the country, which should simplify administration for subcontractors doing work in multiple jurisdictions in Canada.

Once contractors have received payment from the owner (28 days after the receipt of a proper invoice), contractors will then have seven days to pay their subcontractors. Subcontractors will then have seven days from receipt of payment to pay their subcontractors, or seven days from the notice of non-payment from the contractor to dispute the payment.

Further, there are certain jurisdictional changes to lien mechanics. Under the Ontario Construction Act, builders’ liens can now be preserved within 60 days and perfected within 90 days of either the certificate or declaration or substantial completion, or the last day materials or services were provided to the project by the contractor, an increase in both instances from 45 days. The Alberta Prompt Payment and Construction Lien Act also has created specific changes to lien mechanics, increasing the time to register a lien against the project from 45 days from the last day the materials were furnished for the project to 60 days. However, the Alberta Prompt Payment and Construction Lien Act has also created a specific carve-out for concrete, extending the time to file a lien against the project to 90 days, but the context of the concrete carve-out is not clear at this point.

 

Conclusion

While prompt payment legislation is applied with certain modifications in Ontario, it will be applicable to subcontractors on AFP projects and piling contractors will be afforded prompt payment protections. The applicability of prompt payment legislation on AFP projects in Alberta is less clear. Subcontractors working on AFP projects with the Government of Alberta will likely not benefit from prompt payment protections unless the Government of Alberta provides prompt payment terms in the contract. Therefore, piling contractors in Alberta may or may not benefit from prompt payment legislation in Alberta, depending on the owner of the project. 

Geoff Stenger is a partner at Bennett Jones LLP. His practice is primarily focused on project development, long-term service agreements, energy, infrastructure and construction law. Jason Roth is a partner and head of the firm’s construction law practice group and capital projects industry team. He practises law related to infrastructure development projects. Parker Mckibbon is an associate at Bennett Jones LLP and has a corporate commercial law practice with a focus on project development, infrastructure and energy law. Evan Hall is a student at law at Bennett Jones LLP. All are based in the firm’s Calgary office and act on various projects across Canada.

 

 

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Piling Canada is the premier national voice for the Canadian deep foundation construction industry. Each issue is dedicated to providing readers with current and informative editorial, including project updates, company profiles, technological advancements, safety news, environmental information, HR advice, pertinent legal issues and more.