Transitional Gaps: The Prompt Payment and Construction Lien Act
We are receiving many questions from clients about the transitional provisions of Alberta’s new Prompt Payment and Construction Lien Act (PPCLA). There are some ambiguities in this regard.
The PPCLA is the result of extensive amendments to the Builders’ Lien Act as set out in the Builders’ Lien (Prompt Payment) Amendment Act. This legislation comes into force August 29, 2022.
The Transitional Provisions
Any contracts or subcontracts entered into on or after the coming into force date (August 29) must conform to the new provisions. Any contracts or subcontracts entered into prior to the coming into force date are governed by the former provisions until expired, terminated, or amended in order to conform to the new provisions.
Further, the Prompt Payment and Adjudication Regulation adds that any contracts entered into prior to the coming into force date and scheduled to remain in effect for longer than two years after the coming into force date shall be given two years from that date to be amended so that their terms are in compliance with the new legislation.
These seemingly simple transitional provisions leave some room for debate.
The basic lien period is extended from 45 days under the former provisions to 60 days under the new provisions.* The transitional provisions do not clearly state when the new provisions come into effect as pertains to lien rights.
The transitional provisions only address contracts and subcontracts being “governed” by or “conforming to” the new provisions on or after the coming to force date. One might argue that this only covers contractual requirements, not lien rights, such that lien rights are governed by the new provisions as of August 29 regardless of when the contract or subcontract was made. However, it is our preferred interpretation that the transitional provisions apply to the entire Act - including lien rights. In which case, the lien period under the former provisions will apply to a lien arising under a contract or subcontract made before August 29, and the extended lien period under the new provisions will apply to a lien arising under a contract or subcontract made on or after August 29.
In any event, of particular concern, the transitional provisions do not address the situation where a parent contract is made before August 29 and subordinate subcontracts are made on or after August 29. (This situation was addressed in the prompt payment legislation in other provinces. It was also addressed in the transitional provisions relating to prior amendments to the Alberta Builders’ Lien Act in 1997 and 2002. It is unfortunate that is not addressed in the PPCLA.) On a plain reading of the transitional provisions, a contract made before August 29 would be “governed” by the former provisions but a subcontract on the same project made after August 29 must “conform to” the new provisions.
This raises the prospect of inconsistent lien periods between the general contract and subcontracts, or between different subcontracts, on the same project. This inconsistency seems likely to cause conflicts and contract management headaches.
- Construction owners and contractors would be well advised to avoid this scenario if possible, through deliberate management of the effective dates of contracts and subcontracts (i.e. between now and August 29).
- If this scenario cannot be avoided, consideration might be given to amending existing contracts and subcontracts to conform to the new legislation.
- On some projects, it may be necessary to manage lien holdbacks in two separate streams; one for subcontracts governed by the former provisions (45 day lien period), and one for subcontracts governed by the new provisions (60 day lien period).*
Prompt Payment Requirements
Does the gap in the legislation as described above also raise the possibility of the prompt payment requirements applying to some subcontracts but not others on the same project? At first glance it might appear so.
However, the whole prompt payment regime is dependent on the issuance of a “proper invoice” as defined in the legislation. A proper invoice is an invoice issued by the contractor to the owner (and meeting the statutory requirements). Presumably, if a contract is not yet “governed” by the new provisions, the contractor will not issue a proper invoice. If the contract is governed by the former provisions and the contractor does not issue a proper invoice, in our view the prompt payment requirements will not be triggered even if the subcontracts on the same project must “conform to” the new provisions.
- So as to avoid confusion and inadvertently triggering prompt payment rights and obligations, the issuance of a “proper invoice” should be avoided on contracts that are not (yet) governed by the new provisions. (The issuance of a proper invoice is mandatory on contracts that are governed by the new provisions.)
Fortunately, the application of the transitional provisions to adjudication appears more straightforward. Adjudication becomes available as a dispute resolution mechanism effective August 29, in respect of any contract or subcontract entered into on or after the coming in force date.
Although some contractors and subcontractors have contemplated immediately transitioning to the new prompt payment timelines and processes (including the adoption of “proper invoice” forms) on all projects and contracts, this is not likely possible. The reality is that, for a while, it will be necessary to manage some contracts and subcontracts under the former provisions, and other contracts and subcontracts under the new provisions. Careful contract management will avoid most challenges with the transition.
- Construction owners and contractors should identify any contracts entered into prior to August 29 and scheduled to remain in effect for longer than two years after August 29. Plans should be made to amend such contracts within two years to comply with the new legislation.
- Refer also to the bullets above regarding Lien Rights and Prompt Payment Requirements.
In some cases it will make sense (or will be required) to amend existing contracts to conform to the new provisions. And of course all new contracts and subcontracts should contemplate the new provisions as of August 29.
*It is beyond the scope of this article to discuss the exceptions to the basic lien period.
Please reach out to our Construction Law Team with any questions.