Saskatchewan Consulting on Prompt Payment & Adjudication Regulations

The Builders’ Lien (Prompt Payment) Amendment Act, 2018 (Saskatchewan) (the “Act”) received Royal Assent on May 15, 2019. While the “in force” date has not yet been announced, we anticipate that proclamation will likely occur sometime in the first half of 2020.

The Ministry of Justice for the Province of Saskatchewan is now inviting comments before introducing regulations to accompany the Act (the “Regulations”). View consultation document and submit comments before August 30, 2019.

The Act and Regulations are intended to amend The Builders’ Lien Act (Saskatchewan) by introducing a prompt payment and mandatory adjudication regime for construction and capital repair projects in the province of Saskatchewan.

Prompt Payment

The prompt payment regime mandates timely payment by owners and contractors of amounts owing in respect of the contract price. The new regime hinges on the contractor submitting a “proper invoice” (satisfying very basic requirements set out in the legislation). Payment certification has no bearing on a determination of whether an invoice is “proper.”

The general contractor must give the owner a proper invoice every month, unless the contract provides otherwise. Owners have 14 days from receipt of a proper invoice to dispute payment. Any undisputed amounts must be paid within 28 days of receiving the proper invoice. The parties cannot contract out of the 28-day payment period.

Once a general contractor has received payment for a proper invoice, it has seven days to pay its subcontractors, who must in turn pay their own subcontractors within seven days. These payment timelines flow down through each level of subcontractors.

If an owner disputes some or all of a proper invoice, the contractor must give affected subcontractors notice of non-payment within seven days of receiving the dispute notice (those subcontractors must then notify their affected subcontractors within seven days, and so on). If the contractor/subcontractor does not give this notice, it will remain liable to pay its subcontractors in the ordinary course.

Disputed payment amounts, if not resolved by negotiation, will be resolved under the new adjudication regime.

Mandatory Adjudication

In addition to proper invoice payment disputes, a broad range of other construction disputes will be subject to mandatory adjudication – including disputes regarding unforeseen site conditions, delay claims, unauthorized work performed without a change order, and design co-ordination issues.

This is in contrast to some other jurisdictions which have made policy decisions to limit the application of adjudication (e.g. the Federal Prompt Payment Act limits the application of adjudication to contract payment disputes only, as does prompt payment and adjudication legislation recently introduced to the Legislative Assembly of British Columbia).

The contractor can unilaterally initiate adjudication at any time once a “dispute” has arisen. In part owing to the condensed timeframe (typically about 40 days from start to finish), adjudication has been characterized as “rough justice.” Despite this, the determination of an adjudicator will be binding until overturned by a court.

An entity designated as an Adjudication Authority will be responsible for training and qualifying adjudicators, as well as for maintaining a public registry of adjudicators.  Adjudications can only be heard by approved adjudicators.

The parties cannot preselect an adjudicator in their contract. If the parties cannot agree on an adjudicator, the Authority will appoint an adjudicator for them.

The adjudicators have broad discretion to control the process, including investigative powers. These include the ability to determine the relevant facts and law, make inquires without the parties being present, and draw inferences based on the conduct of the parties. Oral hearings will only be at the discretion of the adjudicator.

The costs of adjudication are to be split equally between the parties, unless one party has acted frivolously or in bad faith.

The full amount determined by the adjudicator to be owed must be paid within 10 days of the decision. If payment is not made within this time, the contractor or subcontractor can suspend work until it receives full payment.

Is Your Organization Ready?

By now, most organizations are aware of the basic architecture and intent of the impending prompt payment and adjudication amendments described in the Act.  While most are supportive of the policy’s aim (to facilitate timely payment of the contract price to contractors and subcontractors/suppliers), what strikes us in speaking with industry participants is that far fewer are aware of the full magnitude of the new mandatory adjudication regime (e.g. the breadth of disputes which can be adjudicated and the expansive powers held by the adjudicator).

We have been briefing and advising project participants extensively on the effects of prompt payment and mandatory adjudication for some time, and we are working with organizations to develop consultation, compliance and mitigation strategies so they are prepared when the legislation comes into force.

If you have any questions or concerns related to prompt payment and mandatory adjudication or the impact it may have on your organization, we would be happy to discuss and to assist you in preparing for the upcoming changes.

If you are interested in the development of the Regulations, including the possibility of seeking an exemption from some or all of the mandatory adjudication provisions, we would be happy to discuss that with you as well. Contact our construction practice team in Saskatchewan.

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.