The Prompt Payment and Construction Lien Act
The Prompt Payment and Construction Lien Act (PPCLA) is coming into force on August 29, 2022, through the passing of Bill 37, which amends the Builder’s Lien Act. The Builder’s Lien Act is amended to better ensure that payment of contractors and subcontractors is given in a timely manner, to protect jobs in the construction industry.
Differences between the Builder’s Lien Act and the PPCLA
The PPCLA introduces changes such as:
- a 28-day timeline for project owners to pay invoices to general contractors
- a 7-day timeline for contractors to pay subcontractors after the contractors receive payment from the project owners
- a 7-day timeline for subcontractors to pay its subcontractors after the subcontractors receive payment from the contractors
- Extending timeline for registering liens to 60 days for the construction industry, and 90 days for the concrete industry
- Increases the minimum amount owed that can be subject to a lien of $700
- Allows dispute resolution through adjudication, which is faster and less costly than going to court
The timelines above are affected by the proper invoice, which must be in place. A proper invoice is a request for payment in writing, and includes:
- Description of the work done
- Description of any materials provided
- Payment amount and a breakdown of payment for work done and materials provided
- The agreement to provide the work and materials in consideration for payment, and any other requirements as per the contract, such as whether subcontractors would be necessary
- Statement confirming that the invoice is intended to be a proper invoice
The proper invoice will be provided to the project owner by the contractor. The contractor must give a proper notice to the owner at least every 31 days, but the parties may come to an agreement to specify the terms as to when a proper invoice must be delivered.
Disputing a Proper Invoice – Dispute Notice
A project owner may dispute a proper invoice by delivering a notice of dispute within 14 days of receipt of the proper invoice. The contractor upon receiving the notice of dispute is then required to advise its subcontractors, if any, of the dispute notice. The subcontractor may ask the contractor to provide confirmation of the date as to when the proper invoice was provided to the owner.
The subcontractor responsible to the portion of the work relating to the dispute will be paid after the other subcontractors who provided work that is not contested by the project owner have already been paid.
If the project owner fails to pay the contractor for all or part of the proper invoice, the contractor is still responsible to pay its subcontractors within 35 days after the date the proper invoice was given. The exceptions to this would be if the payment is disputed, or if a deferral of payment was considered by the parties.
If the payment is disputed, the notice of dispute must specify the amount not being paid and the reasons for non-payment. The notice of dispute would alert the parties that the subcontractor’s entitlement to be paid is not completed not solely because of non-payment by the owner.
Another exception is deferral. For a deferral, a notice of non-payment must be done, which outlines the amount not being paid, along with an undertaking to refer the dispute with the owner to adjudication no later than 21 days after the notice of non-payment to the subcontractor.
Notices of dispute must be delivered by the contractor to its subcontractors within 7 days after the contractor receives an owner dispute notice, or if no owner dispute notice is received, within 35 days after the proper invoice is given.
Either the parties’ contract or the Judgment Interest Regulation will determine the rate of interest charged on any unpaid and due amounts previously considered in a proper invoice.
Adjudication under the PPCLA
The parties can provide a written notice of adjudication, which includes the names and addresses of parties in dispute, what the dispute is and its particulars, any remedies sought, and the name of the preferred adjudicator to conduct the adjudication. Examples of remedies that can be reached are order the non-paying party to make payment within a specified time, or allow the unpaid part to cease performing work until proper payment has been made.
It is important to note that adjudication is not possible if an action in court is already in place on or before the notice of adjudication is delivered. As such, it will be prudent, if any of the parties would like to consider adjudication, to immediately take steps so that court proceedings will not prevent adjudication from occurring.
Parties do not have to go through adjudication on all claims, and can choose to go to Queen’s Bench directly for their respective claim. However, choosing not to proceed with adjudication will only be a prudent decision if it is fairly certain that any attempt to adjudicate will be futile and not produce a reasonable result. Due to the benefits that adjudication presents, such as lower legal costs due to attempt to resolve sooner and outside of court, adjudication is recommended.
Adjudicators are qualified and appointed through nominating authorities designated by the Minister of Service of Alberta. Adjudicators are required to obtain a certificate of qualification from the nominating authority, and mast pass other requirements such as having at least 10 years of relevant work experience, and having sufficient knowledge in dispute resolution, contract law and the adjudication process.
Further Changes and Going Forward
The PPCLA also mandates the progressive release of holdbacks on an annual basis if the value of a contract exceeds $10,000,000 and if the contract does not provide for a holdback release on a phased basis.
There are also changes to Lien Registration Deadlines. The deadline for the registration of a builder’s lien under the PCCLA is now 60 days from the last day the services or materials were supplied. If the lien pertains to work relating to concrete the deadline is now within 90 days, which is similar to the deadline for liens relating to improvements to oil or gas well sites.
The Builder’s Lien Act will continue to apply to contracts entered into before August 29, 2022. Ongoing contracts that are continuing for more than two years must be amended to comply with the PPCLA.