On August 29, 2022, Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020 will come into force, which represents the most significant overhaul to the builders’ lien regime that Alberta has seen since the introduction of the Builders’ Lien Act.
As summarized in our previous blog post on this subject, the new Prompt Payment and Construction Lien Act (“PPCLA”) contains a number of key changes aimed at ensuring the timely release of funds from an owner to all of the subcontractors on a construction project.
Below is a summary of the key information that you need to know prior to the changes coming into effect.
Overview of Changes to Alberta’s Builders’ Lien Regime
On August 29, 2022, the Prompt Payment and Construction Lien Act (“PPCLA”) will replace the current Builders’ Lien Act.
The major changes the PPCLA will bring can be broken down into the following categories:
- Imposing strict timelines for payment of amounts owing to contractors and subcontractors;
- Introducing an adjudication process to resolve construction contract and payment disputes; and
- Extending lien filing deadlines and progressive release of holdback changes.
What You Need to Know
New timelines for payment of amounts owing to contractors and subcontractors
The PPCLA establishes strict timelines for payment to contractors and subcontractors for services rendered or materials furnished. In order for a contractor or subcontractor to take advantage of the prompt payment deadlines, charges for services must be listed on a “proper invoice” as defined in the Act. Contractors and subcontractors must provide a proper invoice to the owner or contractor every 31 days in order to initiate the process.
The 31–day requirement is only waived if the contract includes a provision for testing and commissioning of the work done and the test conditions are not met. The testing and commissioning exception is unique to Alberta’s legislation and provides an extra layer of quality control, if needed.
Once the owner receives a proper invoice, the payment clock then starts and payment or a notice of dispute must be sent within the specified timeframe. The payment timelines differ depending on whether the payment is provided by 1) the Owner, 2) a contractor, or 3) a subcontractor.
An owner who owes money under a proper invoice must provide full payment within 28 days of receiving the invoice. If the owner wishes to dispute the proper invoice they must provide the contractor a notice of dispute within 14 days of receiving the invoice. Any amount not in dispute must still be paid within the standard 28 day timeline.
- General Contractors
A contractor who receives full payment of a proper invoice from the owner within 28 days must in turn pay all subcontractors within 7 days.
When a contractor only receives partial payment from the owner they must pay each subcontractor within 7 days subject to certain rules:
- If the amount not paid relates specifically to work done by a particular subcontractor:
- All other subcontractors must be paid; and
- Any amount to be paid by the owner respecting the work done by the subcontractor with who the dispute relates to must be paid to them on a proportionate basis.
- In all other cases, the total amount must be distributed on a proportionate basis.
If a contractor does not receive full payment within 28 days of providing the proper invoice to the owner, the contractor must still pay outstanding amounts owing to its subcontractors within 35 days, unless the contractor provides the following to the subcontractor:
- A notice of non-payment;
- An undertaking to refer the matter to adjudication within 21 days of giving notice to the subcontractor; and
- A copy of any available notice of dispute from the Owner.
The contractor must provide all of the above information within 7 days of receiving notice from the Owner or, if no notice is provided, within 35 days of giving the proper invoice to the Owner.
Finally, if a contractor wishes to dispute the entitlement of a subcontractor to full payment they must provide a notice of non-payment dispute to the subcontractor within 35 days of providing the proper invoice to the Owner.
The payment timelines for subcontractors to other subcontractors are largely the same as from contractors to subcontractors. The only difference is that outstanding amounts owed as a result of a contractor’s non-payment and any notice of dispute must be provided within 42 days rather than 35.
Introduction of an adjudication process to resolve construction contract and payment disputes
The PPCLA also introduces an adjudication process that is intended to expedite dispute resolution in a quicker and more cost-effective manner than pursuing litigation if all timelines are followed. From start to finish, the adjudication process should take no more than 53 days.
On an interim basis, the Minister of Service Alberta will oversee the adjudication process until a permanent Nominating Authority is appointed to assume the role.
Only the following issues may be submitted to adjudication:
- The valuation of services or materials provided under the contract or subcontract;
- Payment under the contract or subcontract;
- Disputes subject to a notice of non-payment;
- Payment or non-payment of an amount retained as a major or minor lien fund and owed to a party at the end of the contract or subcontract;
- Any other matter related to the contract or subcontract that the parties in dispute agree to.
To submit a matter to adjudication, a party must follow the proper process under the PPCLA, which includes providing proper notice to all parties and having an adjudicator appointed by the Nominating Authority.
The adjudicator has 30 days from the date all materials are received to make a determination and a determination made by an adjudicator is binding on the parties. There is no right to appeal an adjudicator’s decision. An adjudicator’s decision can only be challenged by way of judicial review, on very limited grounds.
Extension of Lien Filing Deadlines and Progressive Release of Holdback Changes
Amendments to Lien Registration Deadlines
- The deadline to register a lien under the PPCLA will increase from 45 days under the existing Builders’ Lien Act to 60 days from the last day services or materials were provided.
- The deadline to register a lien for any work related to concrete will increase from 45 days to 90 days to reflect the time required for concrete to cure.
- The deadline to register a lien for work related to an oil or gas well or wellsite will remain 90 days.
Progressive Release of Holdback
Under the Builders’ Lien Act, an owner was required to withhold payment of 10% of the contract price (the “Holdback Amount”) for the duration of the contract.
Under the PPCLA, an owner may be required to progressively release the Holdback Amount. A progressive release is required when:
- The value of a contract exceeds $10 million and has a completion schedule of more than one year; and
- No builders’ liens are registered on title.
For contracts that do not fall within the above parameters, release of holdback remains contingent on a certificate of substantial performance or completion of the project and no builders’ liens being registered against the project.
The Act imposes additional requirements on all parties to a construction project, which not only impact the parties’ rights, but also have the potential to increase the administrative burden on all parties affected. Failing to follow the new technical rules may also result in an adjudicator making determinations against your organization.
The introduction of proper invoices and payment timelines will drastically alter the construction industry in Alberta. All organizations must be prepared to deal with the adjustments to a 31-day billing cycle. Owners must be ready to comply with the strict 28-day payment timelines or 14-day dispute timelines. Contractors must be ready to comply with the statutory requirements of a “proper invoice” in order to guarantee they are compensated appropriately.
Alongside the strict prompt payment timelines, the adjudication process establishes further timelines that organizations must be aware of. The timelines for providing documentation in the adjudication process are short and organizations must be prepared to meet filing deadlines if they hope to receive their fair share. The longer timelines in court proceedings previously experienced will largely be gone and organizations will have less than one month to prepare and file the required documents in most cases.
The transition period of two years provides some flexibility for short-term contracts, however, all new contracts must comply once the PPCLA comes into effect on August 29. Organizations must also amend any long-term contracts that will extend beyond August 29, 2024 to fit within the legislation.
All construction industry participants will be affected by the PPCLA’s implementation. We recommend that businesses and individuals become familiar with this legislation prior to August 29. The construction lawyers at MLT Aikins are well equipped to help all industry professionals assist in this transitionary period. Contact us to learn how we can help your organization thrive under the new legislation.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.