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Section XIII: Infrastructure

Doing Business in Canada

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1. Overview

The infrastructure market continues to be robust in Canada with all three levels of government — federal, provincial/territorial and municipal — engaged in infrastructure development and implementation. Each level of government utilizes various affiliated entities for public service delivery in addition to the direct delivery of such services. Large-scale and high-value capital projects for public infrastructure development are the focus of this review.

The federal government, most of the provinces and many urban municipalities have committed substantial resources to upgrading Canada’s infrastructure through a combination of traditional delivery models, project financed delivery (through public-private partnerships (P3s)) and collaborative contracting models.

Many provincial governments in Canada have established dedicated agencies to execute major capital projects. The most active provincial agencies are Infrastructure Ontario, Infrastructure BC, Alberta Infrastructure and the Société Québécoise des Infrastructures (SQI).

The federal government established the Canada Infrastructure Bank (CIB) in June 2017. Its purpose is to invest C$35-billion of federal funding in revenue-generating infrastructure projects that are in the public interest and attract private capital. The CIB has broad powers, allowing it to pursue potentially innovative funding solutions for public infrastructure projects. Priority sectors of focus for the CIB include green infrastructure, clean power, public transit, trade and transportation and enhanced broadband infrastructure, with a mandate to provide advisory services to project sponsors from the early stages of project development to maximize its potential. To date, the CIB has approved C$9.7-billion in investments across Canada for projects such as the Réseau express métropolitan, the Darlington Small Modular Reactor and a number of municipal zero-emission bus initiatives.

The P3 procurement methodology has been adopted in Canada for roads, bridges, rail (including rapid transit), hospitals, courthouses, schools, hydroelectric power generation facilities, organics and water/wastewater projects for long-term concessions. Historically, a wide range of accommodation and other public facilities have also been built, based upon design-build (DB), design-build-operation (DBO), design-build-finance (DBF), design-build-finance-maintain (DBFM) and related transaction structures.

More recently, the Canadian market has seen the adoption — in certain sectors — of collaborative contracting models such as alliance contracts, integrated project delivery (IPD) structures and progressive design-build contracts. These collaborative delivery models have been gaining popularity, particularly in transit and healthcare projects in British Columbia, Alberta and Ontario.

Several Canadian provinces, as well as the federal government, have enacted prompt payment and mandatory adjudication legislation that apply to public infrastructure projects.

  • With effect from October 1, 2019 (subject to certain transitional provisions) Ontario’s Construction Act includes a mandatory prompt payment regime and a mandatory fast-track dispute adjudication process, with the adjudication process being administered and overseen by a new entity called the Ontario Dispute Adjudication for Construction Contracts (ODACC).
  • In Alberta, Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act came into force August 29, 2022. Bill 37 renamed the Builders’ Lien Act to the Prompt Payment and Construction Lien Act, allowed for dispute resolution through adjudication and introduced mandatory prompt payment similar to the regime in Ontario’s Construction Act.
  • In Saskatchewan, The Builders’ Lien (Prompt Payment) Amendment Act, 2019 came into force on March 1, 2022, introducing a prompt payment regime and an adjudication process similar to those in Ontario’s Construction Act.
  • In New Brunswick, the Legislative Services Branch of the Office of the Attorney General recommended a two-phase reform of the Mechanics’ Lien Act. As part of phase one, the Construction Remedies Act came into force on November 1, 2021, replacing the Mechanics’ Lien Act and modernizing the construction lien legislation. As part of phase two, the province is monitoring developments in other jurisdictions with respect to prompt payment and adjudication regimes.
  • Nova Scotia has passed bills introducing prompt payment and adjudication. Bills 119 and 211 have both received Royal Assent but have not yet been proclaimed into force.
  • B.C. established an industry working group with a goal of working with the Ministry of the Attorney General to table a bill introducing prompt payment legislation in fall 2022, though no bill has been tabled yet. Manitoba’s Bill 38: The Builders' Liens Amendment Act (Prompt Payment) received Royal Assent on May 30, 2023, but has not yet come into force.

Elsewhere in Canada at the provincial level, prompt payment and adjudication legislation are being developed and implemented. For example, Quebec implemented pilot projects to test two main mechanisms to facilitate payments on public contracts and related subcontracts — an obligatory payment schedule and a dispute resolution process using an adjudicator or expert intervenor, in an effort to resolve disputes in a timely manner. These are based on principles similar to those set forth in the Construction Act (Ontario), as adapted to civil law. As a result of the pilot projects, on June 2, 2022, Bill 12 was assented that amends the Act respecting contracting by public bodies.

At the federal level, the Federal Prompt Payment for Construction Work Act received royal assent on June 21, 2019, and will come into force on a day to be fixed by order of the governor-in-council. The Federal Prompt Payment for Construction Work Act will apply to all construction contracts that existed prior to its effective date, which has yet to be determined, and establishes prompt payment requirements with respect to federal real property and federal immovables that are similar to the prompt payment requirements set out in the Ontario Construction Act.

In most major public sector infrastructure projects in Canada, whether they are procured through a P3 delivery model or an alternative delivery model, the public sector retains risks related to discriminatory or industry-specific changes in law, costs of insurance, uninsurable events and risk related to pre-existing but undiscoverable environmental conditions. Force majeure event risk is typically shared between private-sector and public-sector parties. The COVID-19 pandemic saw the introduction in various jurisdictions of contractual provisions allocating the risk not only of additional costs and delays related to COVID-19 specifically, but also of future epidemics and pandemics more generally.

The manner in which private participants manage risk varies with the delivery models and how the contract is negotiated with the public sector, how the private sector entity organizes itself and allocates risks among its participants, how the payment model is structured and the availability of insurance. In recent years, the public sector has adopted alternatives to fixed price contract models, including target price models with painshare and gainshare, as part of the diversification of contract models and in response to market forces.

2. Current State of the Public Infrastructure Market

The P3 market in Canada is now mature, as a number of early P3 projects have now been successfully completed and are in operation, many projects have been sold to long-term investors in the secondary market. In addition, as projects mature, many are being sold or refinanced for the first time and gainshare mechanics between public authorities and the private sector related to increased efficiencies in financing solutions and gains on sale are being tested. In addition, public sector procuring authorities are increasingly turning to alternative contract models, such as collaborative contracting and a return to more traditional contract models, in the procurement of major projects.

Funding for public infrastructure remains robust and increasingly diversified.

Starting with the federal government, the Government of Canada’s over C$33-billion Investing in Canada Infrastructure Program is being delivered through bilateral agreements with provinces and territories. It is interesting to note, however, that the funds available through the Investing in Canada Plan are dwarfed by the publicly stated spending requirements of Canada’s major population centres. Accordingly, other sources will be required to fund Canada’s transit infrastructure needs, most notably from the provinces and municipalities.

The Ontario government, for example, has planned investments over the next 10 years, totalling over C$184-billion, with C$20.6-billion committed in 2023 to 2024. These investments include C$27.9-billion to support the planning and/or construction of highway expansion and rehabilitation projects, C$70.5-billion for public transit, including the province’s four legacy priority subway projects (the all‐new Ontario Line, the Scarborough Subway Extension, the Yonge North Subway Extension and the Eglinton Crosstown West Extension), more than C$48-billion in hospital infrastructure, nearly C$4-billion beginning in 2019 to 2020 to support the government’s commitment to provide high-speed internet access to every community in Ontario by the end of 2025, C$5.4 billion in the postsecondary education sector and C$22-billion, including C$15-billion in capital grants, to support the renewal and expansion of school infrastructure and child care projects.
Alberta’s Budget 2023 Capital Plan proposes to invest C$23-billion, including C$6.5-billion for municipal infrastructure, C$3.1-billion for health facilities and C$2.3-billion for roads and bridges. The Budget 2023 Capital Plan also includes C$3.5-billion of investment over three years for capital maintenance and renewal of existing buildings, roads, bridges and more.

In British Columbia, Budget 2023 includes capital spending on health, transportation, housing and education totalling C$37.5-billion over the three-year fiscal plan period, with C$13.3-billion in transportation investments.

In addition, there has been a diversification of asset classes to include data centres and other digital infrastructure, power generation and storage facilities, zero emission vehicles and charging networks, high-speed telecommunications lines and others, which provide more opportunities for new domestic and international entrants with depth of specialized experience. With the support of Canada’s federal and provincial governments, new infrastructure investments are also being made in First Nation, Inuit and Metis communities, including the Kahkewistahaw Landing Infrastructure project, the Wataynikaneyap Power Transmission Project, the Kivalliq Hydro-Fibre Link, Tshiuetin Rail, the Oneida Energy Storage Project, a culvert replacement in the Walpole First Nation, and the water treatment plant in Alderville First Nation.

Furthermore, recent investments in energy transition have seen a heightened focus on clean hydrogen, energy as a service and waste to energy projects. Examples include the Niagara Hydrogen Centre and the Toronto Western Hospital Raw Wastewater Energy Project in Ontario, as well as the Canada Infrastructure Bank’s Building Retrofits Initiative. As part of its policy goals related to the development of Canada’s green economy and the reduction of Canada’s emissions from greenhouse gases, the Government of Canada has proposed a cluster of green-energy tax incentives, included in its 2023 Budget, that provide investment tax credits for clean hydrogen, clean technology, clean electricity, clean technology manufacturing and carbon capture, utilization and storage.