Cash flow and payment delays due to disputes are a critical concern for construction companies who rely on the timely receipt of funds to maintain operations and pay subcontractors and suppliers. The introduction of prompt payment legislation is intended to address these issues. On October 21, 2020, following other Canadian jurisdictions, Bill 37, Builders' Lien (Prompt Payment) Amendment Act, 2020, passed its first reading in the Legislature of Alberta. If Bill 37 receives royal assent, it will, following proclamation, amend Alberta's Builders' Lien Act (BLA) and become the Prompt Payment and Construction Lien Act.
Key Features of Bill 37
Bill 37 will impose a number of significant changes to construction contracts. In particular:
- Prompt Payment:
Under the prompt payment system, if a party providing work or
materials (the Payee) issues a "proper invoice" (i.e.,
one that includes certain prescribed information) to the party they
contracted with (the Payor), two time periods begin:
- First, the Payor has 14 days to issue a dispute notice to the Payee; and
- Second, the Payor has 28 days to pay all amounts in the "proper invoice" that have not been properly disputed.
- Adjudication: Following the issuance of a dispute notice, a party may refer the matter to adjudication, which will be final and binding unless successfully challenged through an application for judicial review. This judicial review will be limited to certain defined issues including, for example, a mistake of law by the adjudicator.
- Extended Time Periods: Bill 37 will extend certain time periods in the current BLA applicable to the registration of a lien and the retention or release of lien (holdback) funds. Where those time periods are 45 days under the BLA, they will be extended to 60 days. Similarly, where the work is done or the materials are furnished primarily in relation to concrete, those time periods will be extended to 90 days.
- Prohibition of Pay-When-Paid Clauses: Pay-When-Paid clauses are a common feature of many standard form construction contracts and allow a party to delay payment until they themselves have been paid by the party above them on the chain. However, Bill 37 prohibits these very controversial clauses on the assumption that they will no longer be required in light of the prompt payment regime.
- Holdback Release: If provided for in the subject contract, no liens are have been registered and certain other conditions are met, Bill 37 will allow holdback funds to be released at pre-established times unrelated to the completion or the issuance of a Certificate of Substantial Performance.
- Right to Demand Information: Bill 37 expands the list of those entitled to demand financial information from the narrow list currently included in Section 33 of the BLA.
Finally, it appears that the above changes will apply only to contracts entered into on or after the date Bill 37 is proclaimed, which is currently targeted for July of 2021.
Stay Tuned
Bill 37 will have a significant impact on the construction industry in Alberta. Accordingly, we recommend that industry participants familiarize themselves now with the key elements of Bill 37 and commence proactive planning measures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.