On December 9, 2020, Alberta’s Bill 37, the Builders’ Lien (Prompt Payment) Amendment Act received Royal Assent. The amendments to the Builders’ Lien Act are the first in nearly 20 years, and address long-standing concerns within the construction industry, including payment timelines, lien periods, and adjudication. The Alberta government has stated that changes will help ensure contractors and subcontractors are paid on time, strengthen Alberta’s economic recovery, and protect jobs.
The modernized legislation, renamed the Prompt Payment and Construction Lien Act (the “Act”), is expected to come into force in July 2021. The new provisions will not apply to contracts or subcontracts entered into prior to the coming into force of the Act. Any contract or subcontract executed after proclamation must conform to the new provisions.
COVID-19 is taking its toll on the balance sheet and available capital of many companies in the construction sector due to the increased cost of material and extended project timelines resulting from the reduced number of workers permitted on a jobsite. The economic uncertainty arising from COVID-19 is counterbalanced, however, by the certainty provided by the Act with respect to prompt payment deadlines and the timely resolution of disputes through adjudication. For insurance companies underwriting construction projects, the Act accordingly yields a measure of foreseeability when assessing financial risk associated with COVID-19.
Prompt Payment Deadlines
Under the current iteration of the Builders’ Lien Act, there are no rules for payment timelines in the construction industry, leading to payment uncertainty and delay if these timelines are not addressed in contract. The Act’s new prompt payment deadlines, discussed below, were addressed by Nate Glubish, Minister of Service Alberta:
“We are answering calls and addressing concerns from the construction industry to protect jobs by ensuring everyone throughout the supply chain – from general contractors to subcontractors – is paid on time for their work. We’re doing this at a critical time when Alberta’s government is moving forward on its recovery plan and when hard-working Albertans in construction can least afford payment uncertainty.”
While parties to a contract will retain the right to develop their own terms, the Act will introduce the following standardized billing practices, which are subject to disputes outlined in the next section:
- “proper invoices” must be given to an owner at least every 31 days, unless the contract includes a provision for the testing and commissioning of work and such conditions are not met;
- once a proper invoice is issued, the owner must pay the amount payable within 28 days;
- after payment is received, contractors must pay their subcontractors within seven days;
- notwithstanding failure to pay on the part of an owner, contractors are required to pay their subcontractors no later than 35 days after issuing a proper invoice to the owner; and
- subcontractors will have an additional seven days from receipt of payment to pay subsequent subcontractors or, if the subcontractor has not been paid, 42 days after the contractor provided a proper invoice to the owner; however
- failure to satisfy the seven requirements of a proper invoice, as set out in the Act, will prevent prompt payment deadlines from commencing until any failures are remedied.
According to the Act, interest will be allowed to accrue on any unpaid amount included in an invoice from the time it is due.
Notices of Dispute and Non-Payment
The deadlines set out above are subject to notices of dispute and notices of non-payment issued by owners and contractors and subcontractors, respectively. An owner may refuse to pay all or any portion of an amount payable under a proper invoice if the owner provides the contractor with a “notice of dispute” within 14 days after receiving a proper invoice. If a contractor receives a notice of dispute from an owner, the contractor may either:
- pay each subcontractor within 35 days in accordance with the deadline described above; or
- issue a similar “notice of non-payment” to its subcontractor(s) within seven after receiving a notice of dispute from an owner (or if no notice of dispute is provided by the owner, within 35 days after the proper invoice is issued), citing non-payment by the owner as a reason for non-payment along with an undertaking to refer the matter to adjudication within 21 days after giving such notice of non-payment to its subcontractor(s).
Alternatively, if the contractor receives full payment of a proper invoice from the owner, yet disputes in whole or in part the entitlement of a subcontractor to payment, the contractor must give the subcontractor a notice of non-payment within 35 days after providing its proper invoice to the owner.
Equivalent provisions apply to subcontractors that dispute the entitlement of a subsequent subcontractor to payment, save for the 35-day deadlines applicable to contractors being extended to 42 days for subcontractors.
While the initial draft of Bill 37 stipulated that ‘pay-when-paid’ clauses will have no force or effect, as a result of this cascading mechanism of payments and notices of dispute / non-payment, this prohibition was deemed no longer necessary and subsequently removed in a later amendment. The Act accordingly brings an end to the practice of transferring financial risk to subcontractors by way of ‘pay-when-paid’ clauses, notwithstanding the absence of an express prohibition against such contractual provisions.
Establishing an Adjudication Process
Currently, the construction industry in Alberta does not have a formal adjudication process, and payment disputes are routinely resolved through the courts. The Act responds to concerns regarding expensive and lengthy court applications by establishing an adjudication system to resolve disputes. Fredrick Vine, Chair of the Alberta Construction Associated, commented on the implementation of an adjudication process in the construction industry:
“Members of the Alberta Construction Association support legislated payment cycles and adjudication of payment disputes. These mechanisms help timely completion of construction projects, ensure our employees are not impacted by payment delays and provide better value for taxpayers on public infrastructure projects.”
As set out in the Act, the Minister of Service Alberta will appoint Nominating Authorities, which will in turn appoint qualified, third-party adjudicators to resolve disputes in the construction industry. The Nominating Authorities will then assign disputes to the adjudicators, whose judgments will be binding on all parties. Adjudication procedures agreed upon in contract will apply only to the extent that they do not conflict with the procedures outlined in the regulations or established by the responsible Nominating Authority. In the event of a conflict between the procedures set out by the regulations and those prescribed by a Nominating Authority, the former will prevail.
Applications to the adjudication system will require a reasonable fee, which will pay for costs of the adjudication services. These fees will be established in accompanying regulations that will be drafted in the coming months. Other details, such as requirements for adjudicator qualifications, will be refined during the regulation development process as well.
Filing a Lien
Finally, the Act will extend lien filing deadlines from 45 to 60 days for general work, and 45 to 90 days for work in relation to concrete. The minimum amount owed that can be subject to a lien will increase from $300 to $700. Owners will be required to retain lien funds for the duration of the extended lien filing periods.
Currently, a 10% payment holdback is required for all construction projects to protect against lien claims being filed with Service Alberta’s Land Titles Office. Holdbacks are typically released after 45 days following completion of work, however they are often held longer.
Under the Act, parties are permitted to agree on the release of holdbacks at pre-set times, which the owner is required to do if such obligations are set out in contract and the relevant statutory conditions are met. The use of pre-set release points, annually for multi-year projects or as contractual project milestones are reached, will benefit contractors and subcontractors, who can now expect greater cash flow, but will reduce the lien security for lien claimants.
The Act also includes changes to allow trust beneficiaries, contractors, and subcontractors (and not strictly the lienholder, as is currently the case) to request a statement of accounts from the owner or general contractors.
The Act has attracted widespread support throughout the construction industry, and coincides with Alberta’s recovery plan, which the government describes as a bold, ambitious, long-term strategy to build diversity and create thousands of jobs. Industry leaders anticipate that the Act will improve cash flow throughout the construction sector, while ensuring businesses have the tools available to manage financial risks. The fiscal predictability provided by the Act is further expected to enable the construction sector to drive the province’s economic recovery.
The Builders’ Lien (Prompt Payment) Amendment Act may be accessed here: https://www.canlii.org/en/ab/laws/astat/sa-2020-c-30/latest/sa-2020-c-30.html?resultIndex=1