November 2, 2020
The Alberta Government is proposing significant changes to the Builders’ Lien Act that will change the Alberta construction industry. On October 21, 2020, the Government introduced Bill 37, the ‘Builders’ Lien (Prompt Payment) Amendment Act, 2020’ designed to speed up the flow of cash on construction projects, extend deadlines for filing builders’ liens, create new way to resolve disputes, and reduce the risk of non-payment of invoices.
What are the Proposed Changes to the Construction Industry?
The five most significant changes are:
28-day deadline for payment of contractor/subcontractor invoices
Under the current regime, there are no set deadlines for when an invoice must be paid and many contractors/subcontractors are left waiting months to receive payment. These payment delays add financial pressure on contractors/subcontractors and can prevent them from exercising other rights, such as filing builders’ liens.
The proposed legislation would impose a deadline of 28 days on payment of invoices and give 14 days to dispute all (or part) of the invoice. Any part of the invoice that is not disputed would need to be paid by the 28-day deadline.
The law would prevent parties from extending this 28-day deadline. Parties will also need to issue a ‘proper’ invoice, meaning it complies with various requirements.
Extending the deadlines to file builders’ liens
Under the current regime, parties generally have 45 days to file a builders’ lien after certain thresholds or timelines are met.
This can be a very short window. Many contractors/subcontractors elect not to file builders’ liens and suffer the consequences if payment is never issued. Alternatively, some parties file builders’ liens before having a fair chance resolve the dispute amicably. These liens create delay, expense, and can worsen the dispute.
The proposed legislation would extend the time period to file builders’ liens as follows:
- 60 days for construction-related liens (i.e. most residential / commercial construction);
- 90 days for concrete-related liens; and
- 90 days for oil and gas projects.
Combined with the 28-day deadline to pay invoices, this new regime should give parties additional time to negotiate payment, resolve any disputes, and ensure a reasonable window of time to file a builders’ lien.
Prohibiting ‘Pay-when-Paid’ clauses
A ‘Pay When Paid’ clause allows one party to delay payment to others until that party receives payment. Generally, these are used by general contractors to delay payments to their subcontractors until the general contractor receives payment from the owner. The result is that the subcontractor (usually the smallest player) has to wait until the general contractor is paid. Disputes between the general contractor and owner will often delay payment to the subcontractor, even if those disputes have nothing to do with the subcontractor’s work.
Bill 37 would prohibit any ‘Pay-when-Paid’ clauses. This prohibition would apply only to contracts entered into after the new legislation comes into force.
Creation of a new adjudication process
Under the current regime, construction disputes are generally resolved in the Court of Queen’s Bench or via private, binding arbitration. Both regimes can be costly and slow and are often not cost-effective for smaller disputes ($100,000 or less).
The proposed legislation creates a new adjudication system to resolve payment disputes. Third party adjudicators would be appointed to accept and resolve payment disputes and the process for hearing disputes can be tailored to the needs of the construction industry.
The new adjudication process is intended to be a faster, cheaper, and more efficient dispute resolution mechanism.
Introduce new rules for the ‘Holdback’ on Multi-Year Projects
Under the current regime, owners must maintain a Holdback of 10% of any payments made until the Project is essentially complete. In large, multi-year projects, the Holdback is often kept for long after any given piece of the Project is complete. Owners are incentivized not to release the Holdback early because doing so may put them at risk.
The proposed legislation would create new rules for the release of the Holdback and permit the Holdback to be released at pre-set times, without creating additional risk on the owner. Again, the intent is to increase cash flow during the Project and see contractors/subcontractors receive faster payment on their invoices.
Calgary Construction Lawyers
The above changes are not currently the law in Alberta and Bill 37 may be changed before it becomes law. However, everyone in the construction industry would be wise to understand and prepare for the proposed changes now. The construction lawyers at Carbert Waite are ready to answer any questions you have and assist in preparing for these changes to the industry.
We will also continue to monitor Bill 37 and will provide updates as they become available.