Key Changes to the Law – What You Need to Know
Legislative Changes Come Into Force August 29, 2022
Starting August 29, 2022, many construction projects will be governed by the Prompt Payment and Construction Lien Act (the “PPCLA”). The PPCLA will replace the existing Builders’ Lien Act and will make significant changes to the laws governing the construction industry.
The PPCLA applies to contracts for construction projects entered into after August 29, 2022. Any existing projects (contracts signed before August 29, 2022) will continue to be governed by the Builders Lien Act.
PPCLA Does Not Apply to All Construction Projects
The PPCLA applies to the same types of projects which the Builders’ Lien Act applied to. Generally, this means the PPCLA applies to construction projects on private lands involving private companies or individuals. The PPCLA does not apply to projects for the Provincial or Federal governments or on land owned by the Provincial or Federal government.
Creation of a Strict Payment Cycle
The PPCLA creates specific deadlines on Owners, General Contractors, and Subcontractors to pay invoices. This is meant to achieve two goals:
- Where the Project is proceeding smoothly, all parties are paid promptly and in a clearly defined window of time;
- If a dispute arises, all parties are notified, only the disputed payment is withheld, and the balance of the Project can continue. Any disputes can be resolved quickly without delaying the Project or leaving one party waiting months for (at least) partial payment.
The Payment Cycle is:
- General Contractors issue Invoices to the Owner every 31 days.
- Owners must pay Invoices within 28 days of receiving the Invoice.
- General Contractors must pay Subcontractors 7 days after receiving payment from Owner.
- Subcontractors must pay Sub-Subcontractors 7 days after receiving payment from the General Contractor.
Creation of New Obligations – Disputing Invoices
The PPCLA imposes new obligations on all parties that dispute payment of an invoice:
- If all or part of an invoice is disputed, the party receiving the Invoice must issue a formal notice of dispute to the party issuing the Invoice.
- The party issuing the invoice must then notify their contractors of the dispute.
- Each notice must be issued within strict deadlines and the parties must use the specific forms created by the PPCLA.
- Undisputed parts of the Invoice must be paid by the payment deadlines above.
The deadlines and obligations for disputing Invoices are below. The PPCLA has created specific forms which must be used:
- If the Owner disputes the General Contractor’s invoice, the Owner has 14 days after receiving the Invoice to issue a Notice of Dispute to the General Contractor (use Form 1)
- Upon receiving the Notice of Dispute, the General Contractor has 7 days to inform its Subcontractors of the dispute (use Form 2)
- If the General Contractor disputes a Subcontractor’s invoice, the General Contractor has 35 days after issuing its Invoice to the Owner, to issue a Notice of Non-Payment Dispute to the Subcontractor (use Form 3)
- Upon receiving a Notice of Non-Payment Dispute, the Subcontractor has 7 days to inform its Sub-Subcontractors of the dispute (use Form 4)
- The General Contract may dispute a Subcontractor’s invoice even if the General Contractor was paid for that work by the Owner.
- If a Subcontractor disputes a Sub-Subcontractor’s invoice, the Subcontractor has 42 days after the General Contract issued its Invoice to issue a Notice of Non-Payment Dispute to its Sub-Subcontractor (use Form 5)
If these deadlines are not met, the party must pay the Invoice in full. They can still challenge payment at a later time, but they cannot legally withhold payment due to the PPCLA.
A party must comply with these deadlines if it wishes to challenge any or all of an invoice issued to them. All parties can only resist payment of that portion of the Invoice which they properly dispute.
Creation of New Obligations – Proper Invoices
The PPCLA creates new obligations on General Contractors relating to their invoices. Invoices issued by General Contractors must include:
- full and proper name of the General Contractor;
- a description of the work and the time period covered by the Invoice;
- the amount due and any payment terms;
- a statement indicating the Invoice is intended to be a proper invoice as per the PPCLA.
PPCLA Creates a New Adjudication Process
The PPCLA creates a new adjudication or dispute resolution process which is meant to resolve disputes over invoices while the Project is ongoing. This new adjudication process involves both parties submitting written materials to an adjudicator who will then decide the issue in dispute.
The Adjudicator will be individuals with relevant industry experience and knowledge. All parties are entitled to an Adjudicator without conflicts or bias. The PPCLA sets out a specific process for selecting an Adjudicator.
The entire adjudication process is meant to start and finish within 60 days. As a result, you will need to make sure you have all relevant records and materials to pursue (or defend) yourself on very short notice.
This new adjudication process is not meant to resolve each and every dispute between the parties and does not prevent the parties from suing in the Courts or registering a builders’ lien. Instead, it is meant as a fast and cost-effective way to resolve disputes over invoices while the Project is ongoing. The goal is to avoid delaying the Project or leaving a party with an unpaid bill for months or years.
New Disclosure Obligations
The PPCLA allows parties to demand more information about the Project from each other. Parties may ask for copies of the prime contract between the Owner and General Contractor, the contract(s) between the General Contractor and its Subcontractors, or a statement of account showing amounts due and owing to the General Contractor or the Subcontractors. There is a 6 day deadline to supply the information sought.
Changes to Builders’ Liens Deadlines
The PPCLA extends the deadline for filing a builders’ lien from 45 days to 60 days for most construction. The deadline for oil and gas well sites and concrete work is 90 days. Be careful: This deadline is not retroactive. If you commenced a Project before August 29, 2022, your lien deadline is likely still 45 days. The 60 day deadline only applies for new Projects entered into after August 29, 2022.
Pay-When-Paid Clauses
Pay-When-Paid clauses are still permitted but cannot extend the deadlines in the PPCLA. For example, General Contractors cannot force a Subcontractor to wait for payment until the very end of the Project or pay Subcontractor invoices slower than is required by the PPCLA.
However, the PPCLA Payment Cycle does mean that Subcontractors are only paid once the General Contractor receives payment from the Owner. General Contractors are now required to issue an invoice every 31 days and pay its Subcontractors within 7 days of being paid by the Owner. Therefore, Subcontractors should be receiving full (or at least partial payment) more regularly under the PPCLA than before.
How the PPCLA Will Change Your Processes
You can expect to need to make at least the following changes to your internal processes for Projects after August 29, 2022:
- Revising Invoices to comply with the PPCLA requirements
- Maintain copies of all contracts and statements of account to respond to demands for information on time
- Revising internal deadlines to ensure you issue invoices, pay invoices, and (if necessary) issue Notices of Dispute within the strict deadlines created by the PPCLA
- Maintain careful records of the work performed and any deficiencies (or lack of deficiencies) to respond to any Adjudication requests
- Amend your reminder/tracking systems to ensure you comply with the new deadlines created by the PPCLA
- Ensure your accounting systems can issue payment of partial invoices and keep track of which portions of invoices have been paid vs challenged
The information found here is a summary and does not capture every change made by the PPCLA. We provide this information as a summary and for some guidance. The Construction Litigation Group at Carbert Waite is well-versed in the PPCLA. Feel free to reach out to any of the lawyers in our group for more information.
Key Changes to the Builders’ Lien Act Resources:
When does the prompt payment legislation become effective?
The prompt payment legislation comes into effect August 29, 2022. But, the new legislation only applies to contracts entered into after August 29, 2022. Any existing projects or projects commenced before August 29, 2022 will likely be governed by the Builders’ Lien Act.
Does the prompt payment legislation guarantee a party will be paid?
No. The prompt payment legislation creates a new set of rules and deadlines for construction industry participants to follow. It forces General Contractors to issue monthly invoices to owners, compels owners to pay those invoices monthly and then compels the General Contractor to pay its Subcontractors once they get paid by the Owner.
Who does the prompt payment legislation apply to?
The prompt payment legislation applies to Owners, General Contractors, Subcontractors and material suppliers. It also applies to engineers and architects, where engineers and architects are providing services that relate to an improvement.
How quickly will General Contractors be Paid?
The prompt payment legislation calls for Owners to issue payment to General Contractors every 31 days. Unless there is a dispute, Owners must pay the invoice within 28 days. Owners may oppose paying all or some of the invoice, but must issue a Notice of Objection within 14 days of receiving the invoice.
How quickly Subcontractors be Paid?
Generally, the prompt payment legislation calls for Subcontractors to be paid within 7 days of the General Contractor being paid or within 35 days after the General Contractor issued the Invoice to the Owner.
How does partial payment of an invoice work if there is a dispute?
The prompt payment legislation contemplates partial payment of invoices. If only part of an invoice is disputed, then the balance of the invoice should be paid by the above deadlines.
Does the prompt payment legislation require me to have written contracts?
No, you don’t need a written contract to benefit from the prompt payment legislation. The legislation covers most construction projects between private individuals or companies / projects on privately owned land. We strongly recommend having a contract for every project, but the legislation applies to an oral contract or to projects where you simply issued a purchase order/quote for the work.
Can the parties extend the payment deadlines?
No, the deadlines in the payment legislation cannot be extended by agreement. For Subcontractors, you are entitled to be paid 7 days after the General Contractor is paid by the Owner for that work. Any contractual provisions saying otherwise would not be enforceable.
Are Pay-When-Paid clauses permitted?
Technically yes. Under the payment legislation, Subcontractors are entitled to be paid within 7 days of the General Contractor being paid. However, General Contractors are not permitted to delay paying Subcontractors past this 7 day window, unless they formally object to paying in accordance with the legislation.
Any contractual clauses with Subcontractors which seek to extend this deadline would not be enforceable.
Can Builders’ Liens still be filed?
Yes. General Contractors or Subcontractors claiming payment can still file Builders’ Liens and register the Liens against the Owner’s title. However, the deadline to file a lien has been extended, for most projects to 60 days.
The deadline to file liens for oil and gas well sites or concrete work is 90 days.
The deadline to file liens generally starts when you last performed work or provided services or materials. The exact deadline depends on the facts of each project so it remains wise to prepare any liens well in advance so the deadline is not missed.
What changes must be made to my invoices (for General Contractors)?
For General Contractors, invoices must comply with certain requirements. Those requirements include that the invoice must provide:
- full and proper name of the General Contractor;
- a description of the work and the time period covered by the Invoice;
- the amount due and any payment terms;
- a statement indicating the Invoice is intended to be a proper invoice as per the PPCLA.
What changes must be made to my invoices (for Subcontractors)?
The requirements for invoices in the prompt payment legislation technically only apply to General Contractors. However, it would be good practice for Subcontractor’s invoices to include the same information as General Contractors. We anticipate that General Contractors will demand that their Subcontractors issue invoices which comply with these requirements as well.
What is Adjudication?
Adjudication means dispute resolution outside of the Courts. The prompt payment legislation creates a separate forum to hear disputes that arise during construction projects. The purpose s to resolve disputes over invoices/deficiencies in a fast and efficient process.
Disputes would be based on written argument, with each side submitting their side of the case in writing. The dispute will be resolved by an adjudicator, who is an individual with relevant industry knowledge.
The prompt payment legislation contemplates any adjudication would be resolved within about 60 days.
How do I commence Adjudication?
Any party can commence Adjudication after they receive notice that all or part of their invoice is not being paid, or when one party wishes to oppose payment of an invoice. The adjudication process is meant to take place while the Project is ongoing.
A party commences Adjudication by issuing formal notice of Adjudication to a Nominating Authority and the other party to the contract.