UPDATE 11/19: Canada passed the federal Prompt Payment Act in June 2019.
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There are a number of tools and systems that contractors and subs can utilize to enforce payment in construction. Mechanics liens are the most important remedy in construction, but other forces are also in play. These forces include the Miller Act, Little Miller Acts, and prompt payment laws. Prompt payment laws, when available, provide muscle to force payments down the chain. These laws provide for specific time frames during which payments must be moved down the chain. Should a party fail to do so, sizable penalties or other consequences will be used to help speed up the payments.
Contractors, subs, and suppliers north of the border do not receive the benefit of prompt payment legislation. While prompt payment in Canada is not statutorily required on federal projects, help is on the way. Bill S-224, also known as the Canada Prompt Payment Act, was approved by their Senate last month and aims to bring Canada up to speed on prompt payment.
Canada Prompt Payment Act
The Canada Prompt Payment Act was introduced back in 2016 with the goal of speeding up payments in the construction industry. Since it was introduced, the bill has been winding its way through committee reviews and Senate readings. Now it has finally passed the Senate and will go on to Canada’s House of Commons before it can become law. Here are some quick highlights from the most recent version of Bill S-224. As a reminder, only those parties working on Canadian federal projects would be affected.
Here’s the text of the proposed Canada Prompt Payment Act. For a full breakdown, reach out to an attorney familiar with construction law in Canada.
The Canada Prompt Payment Act would apply to all construction contracts made between a government institution and a contractor as well as any subcontracts related to the work provided for in such a construction contract. The provisions of the Act will not be applicable, however, to the individual employees of a party that is contracted to perform work or for those in a class that is already covered by specific regulations. The rights under the Act cannot be waived.
Under the Act, the government institution must make monthly progress payments (unless the contract provides for more frequent payments). A general contractor must submit a payment application setting out its claim for payment for the construction work performed as of that day. The payment application, unless provided otherwise, must be submitted on the last day of the month. Following approval or certification of the claim, the government institution has 20 days to pay the contractor. If this is the final payment on the project and the contract provides a date for final payment, the payment must occur at the earlier of 20 days or the date provided in the construction contract. When no such date has been provided, the government institution must make payment on or before the latter of: (a) the 5th day after the issuance of a certificate for final payment by the payment certifier; or (b) the 15th day after the receipt of the application if there’s no payment certifier or if the certifier fails, without sufficient cause, to issue a certificate for final payment within 10 days of receiving the application.
The provisions for paying subcontractors are largely the same as those for paying contractors, though the timeframes shift a bit. A subcontractor must submit monthly payment applications on the 25th day of the month. The contractor must make payments on or before the 23rd day following the approval or certification of the sub’s payment application. For final payments, a contractor or sub must make payment no later than the date provided by contract or the 30th day following the approval or certification of the payment application, whichever is earlier. If no date is provided, a contractor or sub must make payment on or before the later of: (a) the 10th day after the issuance of a certificate for final payment by the payment certifier; or (b) the 30th day after the receipt of the final payment application if there is no payment certifier or if the certifier fails, without sufficient cause, to issue a certificate for final payment within 10 days of receiving the application.
Milestone payments going down the chain are null and void unless they have been authorized in the original contract with the government institution. For milestone payments based on time intervals. the payments must be provided at intervals at least as frequent as those provided in the contract between the government institution and the original contractor. When milestone payments are properly made according to this section, the provisions regarding progress payments to contractors and subcontractors will not apply.
Approval of Payment Applications
Unless a written notice of dispute is provided, a payment application will be deemed approved on the 10th day after its receipt when it was submitted by a contractor and the 20th day when submitted by a sub. When there is a payment dispute, the dispute must come in the form of a written notice setting out the reasons for the dispute (including references to the construction contract) and the disputed amount. When notice of dispute has been provided, the payer may only withhold the amount related to the dispute.
Right to Suspend Performance and Payment
When a paying party fails to make payment under the Act, the party owed may suspend performance. A contractor or sub suspending performance must first provide written notice of default to the party responsible for paying them and send a copy to all lower tiered parties who will be affected. During the adjudication of a dispute, a party may suspend payments down the chain as long as proper written notice was given under the Act. If the dispute goes to an adjudicator and the payee is successful, the paying party must provide the payment, plus interest prescribed by the act, within 7 days. Otherwise, payee may suspend performance.
Terminating Contract for Non-Payment
If an unpaid party does not receive payment of amounts due in accordance with the decision of an adjudicator, the contractor or sub may terminate the contract for non-payment. Written notice must be provided 14 days before the termination of the contract, during which time the paying party has the opportunity to cure the dispute. A termination of the contract for non-payment, when made in accordance with the Canada Prompt Payment Act, will not constitute a breach of the agreement.
A party may refer a dispute to adjudication by first providing notice of intent to do so with the other party in dispute (as well as any other interested parties). The notice must identify the matter in dispute and the relief they are seeking. If the contract does not provide for the appointment of a specific adjudicator, the parties may agree on an adjudicator or apply to a court of competent jurisdiction. A decision on the dispute must be made within 28 days or a period agreed to by the parties.
Right to Information
Subcontractors may demand disclosure of the due dates for progress payments and final payment to the party who hired them as it relates to the portion of work they were contracted for. Immediately upon receiving payment, a party (other than a governmental institution) must provide notice of the date and the amount received to each of its subcontractors or suppliers as the payment relates to the work performed by that sub or supplier. Such notice must be provided by (a) letter; (b) posting it on a website; or (c) in any other manner allowing payees to access the notice.
While the Canada Prompt Pay Act still has a ways to go, contractors and subs should be excited. Under this Act, parties up and down the chain on federal projects would be compelled to communicate due dates and payment disputes, which should go a long way toward making life easier for everyone involved. The construction payment utopia knows no borders, and by adding transparency and communication to the payment chain, the Canada Prompt Payment Act should be a step in the right direction for federal projects.
Check out the Prompt Payment tag on the blog for more on the subject.