A First Look at Alberta’s Proposed Prompt Payment Legislation
Last week the Government of Alberta introduced Bill 37, which proposes new rules relating to issues such as builders’ liens, payment terms, invoicing, and dispute resolution in the construction industry. Below, we highlight the key changes that are proposed in Bill 37.
Payment & Invoicing
Bill 37 is intended to implement a regime providing prompt payment for construction work performed in Alberta. In this regard, Bill 37 introduces new deadlines for payment of invoices and new restrictions on payment terms in construction contracts. The key changes relating to payment and invoicing are as follows:
- Owners, contractors and subcontractors will be required to pay “proper invoices” within 28 days after receipt.
- Bill 37 defines a “proper invoice” for the construction industry, and sets out the minimum requirements for the content of a proper invoice.
- For example, under Bill 37, proper invoices will need to include specific information such as (i) a description of the work or materials provided, (ii) the period of time during which the work or materials were provided, and (iii) the authority (whether in a written or verbal contract or otherwise) for the work or materials to be provided.
- Construction contracts will be prohibited from including ‘pay-when-paid’ clauses (clauses stating that a person is not obligated to pay a subcontractor until after that person receives payment).
- Construction contracts will be prohibited from requiring certification from a person or approval from an owner before a proper invoice can be issued. However, prior certification or approval will be permitted in contracts for testing and commissioning.
- With respect to the mandatory 10% holdback currently required under the Builders’ Lien Act, Bill 37 expands on existing provisions regarding progressive release of the holdback over the course of a project (under current rules, a progressive release is permitted through certificates of substantial performance) by providing an additional mechanism for progressively releasing the holdback.
- Pursuant to the new mechanism, a progressive release of the holdback will be allowed when specific requirements are met. For example, such requirements include that (i) the contract price would need to exceed a certain amount (that amount is not yet prescribed by the Government of Alberta), and (ii) the construction contract would need to include certain terms expressly permitting the progressive release of the holdback.
Disputes & Adjudication
Bill 37 provides new rules relating to dispute resolution, including a new dispute adjudication regime. The key changes relating to dispute resolution are as follows:
- Owners, contractors and subcontractors have 14 days to issue a notice disputing a proper invoice.
- With respect to partially disputed invoices, Bill 37 will require owners, contractors and subcontractors to release payment of the undisputed portion of a proper invoice.
- Bill 37 will establish a new dispute adjudication system intended to provide an alternative to resolving disputes through the Courts. Some details of the adjudication system are as follows:
- A party to a contract or subcontract may refer a dispute to adjudication.
- A party may only refer to adjudication a dispute with the other party to their contract or subcontract. Therefore, entities involved in a project but not contracted with each other will be unable to adjudicate with each other (for example, a subcontractor and the owner’s consultant will be unable to adjudicate).
- The adjudication procedures in Bill 37 override any contrary adjudication procedures in a construction contract.
- An adjudication must be performed by a qualified adjudicator, appointed by a Nominating Authority that will be established by the Minister of Service Alberta.
- The determination of a matter by an adjudicator is final and binding on the parties, except that it may be reviewed by the Court on certain grounds through an Application for judicial review.
Bill 37 mostly leaves the current builders’ lien procedures unchanged. However, Bill 37 does modify lien deadlines and the minimum amount of a lien claim:
- The deadline for registering liens for the concrete industry is extended from 45 days to 90 days. Oil and gas well projects will also have a deadline of 90 days, which is consistent with the current rules in Alberta.
- The deadline for registering liens for the rest of the construction industry is extended from 45 days to 60 days.
- The minimum dollar value of a lien claim is increased from $300 to $700.
Other Information and Changes
In addition to the changes outlined above, the following information and changes are noteworthy:
- Alberta’s Builders’ Lien Act will be renamed to the Prompt Payment and Construction Lien Act.
- Bill 37 expands the availability of information requests relating to a construction project. Specifically, additional people involved with a project (not just the lienholder, as is the case under Alberta’s current rules) will be allowed to request information such as statements of accounts, contracts and mortgage terms.
- The new rules proposed in Bill 37 will not apply retroactively. They will only apply to contracts entered into after the rules come into force.
- The proposed changes do not apply to projects that would not have been governed by the Builders’ Lien Act.
If Bill 37 passes, then the next step will be for the Government of Alberta to develop regulations associated with Bill 37. Service Alberta currently intends to bring the new rules into force in July 2021.
McLennan Ross LLP will update you when any developments occur and when the new rules come into force. In the meantime, McLennan Ross LLP will be providing additional articles, information and analysis on the changes proposed in Bill 37.
UPDATE: After this article was published, amendments were made to Bill 37. The amendments modified and removed some of the key changes listed in this article.
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