How recent developments are impacting the Canadian Construction and infrastructure sector
By / par Richard Wong and Roger Gillot
The prompt payment movement is spreading throughout Canada, and it is critical for players in the Canadian construction and infrastructure sector – including owners, developers, contractors, sub-contractors, lenders, construction managers, architects and engineers – to be aware of ongoing developments and the related implications so they can prepare and respond effectively.
As many know, on December 12, 2017, Ontario’s Bill 142 introduced sweeping reforms to the Construction Lien Act. Based on the recommendations of an in-depth report commissioned by the Ontario government in 2015 and released in 2016, the reforms included a prompt payment regime, adjudication of construction disputes, and implementation of various technical amendments to modernize the Act. The changing nature of the legislation, expanding beyond traditional construction liens, was also reflected in its new name: the Construction Act.
To provide industry participants with sufficient time to prepare for the changes, the Ontario government staggered their implementation, with the technical amendments coming into force on July 1, 2018, and prompt payment and mandatory adjudication coming into force on October 1, 2019. The adjudication process will be administered and overseen by an Authorized Nominating Authority known as Ontario Dispute Adjudication for Construction Contracts (ODACC). The other amendments include transitional provisions pursuant to which certain improvements or contracts will be “grandfathered” and subject to the Construction Lien Act or Construction Act as it read prior to the amendments taking effect.
Prompt payment and adjudication have gained significant momentum in Canada as the federal and other provincial governments have considered various aspects of Ontario’s new Construction Act in the context of their own jurisdictions:
- In Nova Scotia, the Builders’ Lien Act was amended by Bill 119, which received royal assent on April 12, 2019. The act was renamed Builders’ Lien and Prompt Payment Act. Although the bill introduces concepts from Ontario’s new prompt payment regime, it seems to take a narrower approach as regards availability of adjudication. The amendment limits availability of adjudication to disputes that are the “subject of a notice of non-payment.” Unless exempted by the regulations, the amendments are applicable to contracts and subcontracts made after the date of enactment. Our team is monitoring the progress, as we await regulations prescribing application of the amendment, payment timelines, adjudication procedures and details regarding notice of non-payment.
- In Saskatchewan, Bill 152 to amend The Builders’ Lien Act was introduced on November 20, 2018, and received royal assent on May 15, 2019. The bill introduces a prompt payment and adjudication regime similar to Ontario. Further, the amendments include transition provisions pursuant to which certain contracts will be “grandfathered” and subject to the act as it read prior to the amendments taking effect. As it prepared the regulations to accompany the amendments to the act, the Ministry of Justice had sought comments from the public by August 30, 2019.
- In New Brunswick, the Legislative Services Branch of the Office of the Attorney General published two sets of Law Reform Notes proposing the replacement of Mechanics’ Lien Act with a modernized Construction Act largely based on the Ontario reforms. Law Reform Notes #40 released in December 2017 dealt with modernization of structure of language. Law Reform Notes #41 released in May 2018 addresses prompt payment and adjudication. While Note #41 recommends adopting a prompt payment scheme similar to Ontario’s and agrees that a prompt payment scheme must be accompanied by an expedited dispute resolution mechanism, given the GDP of the construction industry in New Brunswick, the authors remain unsure as to whether Ontario’s adjudication scheme is appropriate for New Brunswick.
- In Manitoba, an independent prompt payment regime was proposed by Bill 218, which passed first and second reading in April 2018, but died in November 2018. On November 19, 2018, the Manitoba Law Reform Commission released its final report titled The Builders’ Liens Act of Manitoba: A Modernized Approach, which recommended the introduction of a prompt payment and adjudication regime, among others. Private member’s Bill 245, titled The Prompt Payments in the Construction Industry Act, was introduced on June 3, 2019.
- In Québec, Bill 108, which received royal assent on December 1, 2017, authorizes the implementation of pilot projects aimed at testing various construction law reforms for public contracts and subcontracts. The measures to be tested include a prompt payment regime and adjudication.
- In Alberta, starting in April 2016, Alberta Infrastructure began implementing prompt payment clauses in its various contracts.
- In British Columbia, Bill M223 titled the Builders Lien (Prompt Payment) Amendment Act, 2019 was introduced to the Legislative Assembly of British Columbia on May 28, 2019. Unlike the Ontario legislation, the B.C. bill introduces a prompt payment regime with no mention of an adjudication mechanism other than a requirement to provide an undertaking to refer the matter to adjudication as a part of notice of non-payment. In September 2019, the British Columbia Law Institute issued a consultation paper on the Builders Lien Act with tentative recommendations and is seeking responses from the stakeholders by January 15, 2020.
At the federal level, the government introduced Bill C-97 (Budget Implementation Act, 2019, No. 1) on April 8, 2019, in the House of Commons, which includes the Federal Prompt Payment for Construction Work Act. The bill received royal assent on June 21, 2019, but the Cabinet has yet to determine the date this law becomes effective. The proposed legislation is surprisingly distinct from the Ontario legislation as regards its transition provisions. Construction contracts existing before the enactment of new legislation are not grandfathered; rather they will also be subject to new legislation from one year of coming into effect. In addressing stakeholders’ concerns regarding consistency and legislative alignment, under the new legislation, the Governor in Council may exempt designated provinces from application of the proposed legislation. In granting exemption, the Governor will take into account whether a province has a prompt payment or adjudication regime “reasonably similar” to the federal legislation. This may disrupt existing contracts mid- performance to provide for contractual clarity or compliance with the new legislation.
The Canadian construction and infrastructure sector should be keeping a watchful eye on developments in individual provinces and federally. By staying informed – and engaging legal experts with proven experience and know-how – industry participants can ensure that their projects are structured in the most effective way while mitigating the risk of encountering serious issues and minimizing the potential of unforeseen delays and cost overruns. ▪
