By Leanna Olson, Ivan Merrow, and Stephanie Garraway
Prompt payment legislation is intended to keep cash flowing down the construction pyramid, from the owner to the contractor and its subcontractors and suppliers. So far, no Canadian province has enacted prompt payment legislation. Ontario attempted to enact standalone legislation in 2013, but it did not become law. Since then, prompt payment provisions are being considered in the proposed amendments to Ontario’s Construction Lien Act.
The Canadian Senate has now introduced prompt payment legislation under Bill S-224, the Canada Prompt Payment Act (the Act), which would apply to construction contracts made with the federal government and related subcontracts. Bill S-224 was introduced in the Senate by Donald Neil Platt to combat two problems found in the federal construction industry:
- delays by the federal government in processing valid invoices for construction work; and
- delays in remitting payments down the subcontract chain when valid invoices have been submitted.
Although the Act is not yet law, Bill S-224 passed second reading in the Senate on November 28, 2016 and has currently been referred to the Standing Committee on Banking, Trade and Commerce.
What does the Act essentially mean? If you are engaged in a construction contract with the federal government, the Canada Prompt Payment Act would entitle you to payment on undisputed invoices without delay. If payment is not forthcoming, the Act would give you the right to suspend or terminate your work. Some of the highlights are summarized in the following paragraphs.
The Canada Prompt Payment Act contemplates monthly progress payments, unless shorter intervals are provided for in the construction contract. It also states the government institution must pay the contractor within 20 days, and the contractor must pay its subcontractor within 30 days of the last payment period or receipt of a payment application—whichever is later.
Milestone payments are permitted, but the prime contract must have milestone payments before the subcontract may have them. Payment is then due based on the achievement of the milestone or the certificate for payment for the milestone by the payment certifier. Also, subcontractors must receive written notice if the prime contract has milestone payment provisions.
A payment application is deemed approved if there is no written notice of dispute within 10 days of the payment application. A notice of dispute must set out the reason and amount of payment in dispute, and only that amount may be withheld from payment.
Suspension and termination
Failure to pay gives the payee the right to suspend or terminate the contract, but seven days’ notice must be provided. If the payee is the contractor, it may suspend payment to its subcontractors; if the payee is a subcontractor, it too may suspend payment to its subcontractors.
A payer is required to pay interest on any amount due, either at the rate provided in the contract or a rate prescribed by regulation if there is none in the contract.
Any party to a construction contract may refer a dispute to adjudication by providing notice identifying the matter in dispute and the relief sought, along with proposing a timetable for the process.
Right to information
The payee may give notice to a payer requesting disclosure of dates for the payments under the contract. When the contractor is the payer, it must, upon receiving payment, provide notice of the date and amount received that relates to the work performed by the payee. If the payer does not provide the information or misstates the information, it is liable for resulting damages.
No one can contract out of the rights, obligations or remedies under the Act.
The Senate debates of November 28, 2016 suggest there may be amendments to the current wording of Bill S-224 to synchronize it with the prompt payment additions to Ontario’s lien legislation reform. Although it is not yet law, builders should keep an eye on the bill’s progress, as its enactment would add broader rights to those in the industry to collect from federal government contracts.
Leanna Olson is an associate in Miller Thomson LLP’s Calgary office. She advises clients on litigation and legal matters focusing on the construction industry, including residential, commercial, infrastructure, and industrial projects. Olson helps clients at the initial stage of projects by reviewing contracts, assisting with contract negotiations, and drafting custom-built contracts. She can be contacted at firstname.lastname@example.org.
Ivan Merrow is an associate in Miller Thomson LLP’s Markham, Ont., office. He is a litigation lawyer who specializes in commercial litigation, construction litigation and dispute resolution, and contract and shareholder disputes. Whether the problem is getting paid, enforcing an agreement, recovering from a loss, defending a lawsuit, or appealing a judgment, Merrow designs solutions to meet his client’s expectations. He can be reached at email@example.com.
Stephanie Garraway is an articling student in Miller Thomson LLP’s Toronto office. She completed her JD at Osgoode Hall Law School. During law school, Garraway received several distinctions in various moot competitions and was on the Dean’s list.