The Government of Alberta recently introduced the Builders’ Lien (Prompt Payment) Amendment Act, 2020 (Bill) in the Alberta Legislature. The Bill proposes, among other things, the introduction of prompt payment legislation and a formal adjudication process, following similar legislation from elsewhere in Canada, including Ontario and Saskatchewan.
The proposed amendments predominantly fall into three categories:
Changes to the existing holdback and builders’ lien process.
New prompt payment rules.
- A formal adjudication process to address construction disputes.
The amendments will only apply to contracts entered into after the Bill is proclaimed into force, which is expected to occur in July 2021.
CHANGES TO HOLDBACK AND LIEN REGISTRATION RULES
Currently, owners are required to retain funds equal to 10 per cent of the value of the work done until 45 days following the completion of the contract for the work (or 90 days in the case of improvements to an oil or gas well or well site). Failure to do so results in potential exposure for the amount required to be held back, which can significantly delay payment of the holdback amounts to contractors, subcontractors and material suppliers.
The Bill proposes a statutory right to release holdback amounts on a pre-set, phased basis, without risk to the owner. Owners could still choose to retain the holdback funds until the completion of the project. However, if the value of the subject contract exceeds a minimum value prescribed in the legislation, owners will have the option to include contractual terms for the release of holdback funds, either on an annual basis or in accordance with any other schedule included in the contract. These amounts could then be released without risk to the owner as long as no lien has been filed on the project at the time of release.
The Bill further includes an extension of many lien filing periods. Specifically:
The normal lien filing period of 45 days, applicable to most construction projects, will be extended to 60 days.
The lien filing period for the provision of concrete or work relating to concrete will be extended from 45 to 90 days.
The lien filing period of 90 days, applicable to improvements to an oil or gas well or well site, will remain the same.
CHANGE TO PAYMENT PERIODS: PROMPT PAYMENT
Currently, the Alberta Builders’ Lien Act does not provide for any payment timeline. Rather, invoicing and payment requirements are subject to the contracts negotiated and agreed-upon by the parties.
The Bill includes two significant changes in this regard:
“Pay when paid” clauses, which allow contractors to withhold payment to subcontractors until the contractor has received payment from the owner, will be prohibited and of no force and effect.
The content and timing of invoices and payments will be prescribed. Specifically, the Bill requires that contractors and subcontractors provide "proper invoices". This differs from the legislation in Ontario, which only applies this rule to contractors.
The proposed rules include:
The inclusion of specific information in the invoices, including a description of the work done and the identification of the invoice as a “proper invoice”, as set out in the legislation.
A payment deadline of 28 days from the date of receipt.
The requirement that any dispute with respect to the invoice, or any part of it, be initiated within 14 days using a formal notice of dispute.
The application of interest on overdue amounts at a rate to be prescribed in the Regulations.
A prohibition on making the payment of invoices conditional on prior certification or prior approval by the owner. Invoices may, however, still be made conditional on testing and commissioning of the work.
OPTIONAL ADJUDICATION OF DISPUTES
Currently, builders’ lien disputes must be commenced by a Statement of Claim filed in the Alberta Court of Queen’s Bench.
The Bill proposes an optional adjudication process to address construction disputes outside of the court system. Parties may instead elect to resolve a claim using adjudication. Although not currently set out in the Bill, we expect that the adjudication system will only address payment disputes. All other disputes will likely remain in the jurisdiction of the court.
Pursuant to the proposed amendments, the adjudicator’s decision would be final and binding, subject to a right to seek judicial review based on limited and statutorily defined grounds. This is significantly different from the legislation in other jurisdictions, in which the adjudicator’s decisions are binding only on an interim basis.
Key aspects of these changes include, in summary:
The Bill includes significant mandatory changes to construction contracts in Alberta. Owners, contractors and subcontractors should carefully examine their contracts and revise as necessary to comply with the new legislation.
The elimination of “pay when paid” clauses and the introduction of “proper invoices” may significantly increase the speed of payments on construction projects and affect project economics. All participants should carefully consider the effect of these clauses on the project.
Industry participants should consider whether they prefer adjudication or the court system. While the exact structure of the new adjudication process is yet to be determined, consideration of this issue in advance will assist if issues arise.
For further information, please contact:
David Tupper 403-260-9722
Richard Bell 403-260-9656
Tom Wagner 403-260-9734
or any other member of our Litigation & Dispute Resolution
or Construction Dispute Resolution
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