Pay What You Owe – Proposed Changes to the Builders’ Lien Act Regarding Prompt Payment
On October 21, 2020 the Province introduced Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020 (“Bill 37”), which contained a number of significant changes to Builders’ Lien Act, RSA 2000, c B-7, renamed under Bill 37 to the Prompt Payment and Construction Lien Act (the “Act”). Upon reading Bill 37 many at our office were left scratching their heads as the Bill contains a number of loose ends, which is why we weren’t surprised to hear that the Province released further amendments to the Bill on November 4, 2020.
The purpose of this article is to review the prompt payment provisions of Bill 37; we will discuss the adjudication and other provisions separately.
Bill 37 initially appeared to leave Contractors at significant risk of having to pay Subcontractors prior to receiving corresponding payment from the Owner. Amendments have addressed this initial concern. As amended on November 4, 2020, Bill 37 now largely mirrors the similar legislation already in force in Ontario. Though still not in effect, the proposed changes will have significant implications for construction businesses, one of the most significant changes being the introduction of the concept of “proper invoices” and prompt payment provisions.
Bill 37introduces the requirement of a “proper invoice”, which is a critical first step in the prompt payment process. A proper invoice is: “a written bill or other request for payment for the work done or materials furnished in respect of an improvement under a contract or a subcontract.” According to section 32.1(1) of Bill 37 a proper invoice must contain:
1. the Contractor’s name and business address;
2. the date of the proper invoice and the period during which the work was done or materials were furnished;
3. information identifying the authority, whether in a written or verbal contract or otherwise, under which the work was done or materials were furnished;
4. a description of the work done or materials furnished;
5. the amount requested for payment and the corresponding payment terms broken down for the work done or materials furnished;
6. the name, title and contact information of the person to whom the payment is to be sent;
7. a statement indicating that the invoice provided is intended to constitute a proper invoice; and
8. any other information that may be prescribed.
Proper invoices must be given to an Owner at least every 31 days, unless the contract includes a provision for the testing and commissioning of work or material.
It should also be noted that the prompt payment clock begins on delivery of the proper invoice.
Payment by Owner
According to section 32.2 of Bill 37, upon receipt of a proper invoice, Owners must pay Contractors the amount payable under a proper invoice within 28 days, unless within 14 days of receipt of the proper invoice the Owner provides a Notice of Dispute in the prescribed manner (specifying the amount not being paid and detailing all reasons for non-payment). Any amounts not identified in the Notice of Dispute must be paid within the 28 calendar day period. If a Notice of Dispute is not provided, the amount claimed in the proper invoice must be paid in full.
Though not specified under Bill 37, the requirement that a Notice of Dispute detail “all reasons for Non-Payment”, suggests that an Owner may not be able to contest proper invoices by relying on reasons not specified in the Notice of Dispute. It will remain to be seen whether it will be permissible to rely on reasons for Non-Payment that are not contemplated at the time of submitting the notice.
Payment by Contractors
Where a Contractor receives a Notice of Dispute from the Owner, the Contractor can deliver a corresponding Notice of Non-Payment in the prescribed form to any Subcontractors affected by the dispute – otherwise the Contractor is obligated to pay its Subcontractors within 35 days of the issuance of the proper invoice. Where the Owner does not pay, the Contractor, when issuing the Notice of Non-Payment to its Subcontractors, must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the Subcontractor.
On the other hand, if a Contractor receives a partial payment from an Owner they will have three options: (1) the Contractor may pay on a proportionate basis the amount received within 7 days and deliver a Notice of Non-payment in the prescribed manner; (2) pay on a proportionate basis the amount received within 7 days and pay the Subcontractor the balance within 35 days (even if not received from the Owner); or (3), deliver a Notice of Non-Payment to the Subcontractors for the entire amount.
Payment by Subcontractor
The concept of prompt payment applies to all tiers, from Owner to Subcontractors. A Subcontractor who after providing a proper invoice receives full payment from a Contractor is in turn required to pay its Subcontractors within 7 days of receipt of the payment. If the Subcontractor chooses not to pay, it must ?deliver a Notice of Non-Payment within 42 days of the date the proper invoice was given by the Contractor to the Owner.
If the Subcontractor has ?received a Notice of Non-Payment from the Contractor, it must within 7 days of receiving the notice from the Contractor deliver its own Notice of Non-Payment to its Subcontractors, and must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the subcontractor. If it does not, it must pay its Subcontractors within 42 days of the proper invoice being given by the Contractor to the Owner.
Considering the above, it is important that proper invoices be accurate; nevertheless, revisions can be made to proper invoices if:
1. the parties to the proper invoice agree to a revision;
2. the date of the proper invoice is not changed; and
3. the proper invoice continues to meet the requirements (noted above).
Lastly, proper invoices must be properly served on the corresponding party. To constitute proper service, the proper invoice must be served in any manner permitted by the Act or the Alberta Rules of Court, Alta Reg 124/2010 (“Rules”). Some manners of service permitted by the Rules include personal service, registered mail, and electronic methods.
Are You Ready for the Change?
If passed, Bill 37 and the corresponding prompt payment provisions will take effect on proclamation, and are sure to bring a cultural shift to the construction industry in Alberta, with cash flowing more quickly from owners, to contractors to subcontractors, and so on.
In light of the significant changes proposed, members of the construction industry should review Bill 37 to ensure they understand the requirements of preparing and delivering “proper invoices”, payment, or notices within the appropriate time periods.
Additionally, to prepare for the likely passing of Bill 37, members of the industry should consult legal counsel for guidance on revising contacts and updating project management and documents management systems.