The construction industry in Alberta is about to change significantly. We can help you get ready for it.
On October 21, 2020, Service Alberta Minister Nate Glubish tabled the Bill 37, the Prompt Payment and Construction Lien Act, which if passed will make the first substantial amendments to Alberta's Builders' Lien Act in almost twenty years. The Alberta Legislature will debate these amendments in the Fall 2020 session, develop detailed Regulations to accompany the amended Act, and expects the amended Act to come into force in July 2021.
Bill 37 introduces many amendments to the Act and will have a significant impact on the construction industry in Alberta. Gowling WLG will be providing a number of articles on Bill 37 in order to provide you with a better understanding of the coming impacts. This Building Brief provides a brief summary of the coming changes as set out in Bill 37. Sign up for the Building Brief to keep current as Bill 37 makes its way through the Legislature.
The time it takes for construction workers to get paid after completing work has increased dramatically over the years. This has led many jurisdictions to introduce legislative time periods, or "prompt payment" laws, most recently Ontario. Alberta is now joining the prompt payment world.
Section 14 of Bill 37 introduces a new "Part 3 – Prompt Payment" to the Act. These are significant changes to the process and timing of payments on construction projects in the Province. The highlights of the Alberta version of the Prompt Payment regime include:
- Owners, contractors, and subcontractors must pay within 28 days of receiving a "proper invoice". This diverges from Ontario's Construction Lien Act, which mandated payment from the owner to the contractor within 28 days, but then gave the contractor 7 days to pay its subcontractors, and 7 additional days from subcontractors to sub-subcontractors, down the construction chain.
- The set time line for payment overrides any contrary provisions in the contract.
- A "proper invoice" is expressly defined in Bill 37 and must include specific information, including a description of the work performed, the authorization pursuant to which the work was undertaken, the period that the work was performed, and a statement that the invoice is intended to be a "proper" invoice.
- Issuance of a proper invoice cannot be made contractually conditional upon prior certification of a person or prior approval of the owner. Consequently, certification by the project Consultant cannot be a condition precedent to issuing a proper invoice. Testing and commissioning of the improvement, however, can still be a precondition to issuing a proper invoice.
- If a party disputes a proper invoice, that party must furnish a notice of dispute in the prescribed form within 14 days of receiving the invoice. The notice of dispute must specify the amount that will not be paid and the reasons why the payor contests the payment. If a notice of non-payment is not delivered on time, the full amount of the invoice must be paid at the end of the 28-day payment period.
- Pay-when-paid clauses will become statutorily prohibited. A contractor, for example, must therefore pay a subcontractor pursuant to a proper invoice, even if the owner fails to pay the contractor.
- Interest begins to accrue at a statutorily prescribed rate on all late payments. This cannot be waived.
- If a dispute cannot be resolved between the parties, it can be referred to an adjudicator, pursuant to the process below.
Adjudicating construction disputes
The proposed amendments to the Act also introduce construction dispute adjudication, a fast-track resolution for disputes as an option to litigation introduced in the United Kingdom 25 years ago and in Ontario in 2019. Adjudication is intended to provide a quicker and more economical option to conventional dispute resolution processes. The highlights of this adjudication process include:
- Parties may only adjudicate disputes with other parties to a contract or subcontract. This means that a party cannot adjudicate a dispute with an entity with whom it does not have a contract – for example, a contractor will not be able to adjudicate a dispute with a consultant, nor a subcontractor with an owner.
- Unlike Ontario's Construction Lien Act and similar adjudication statutes, Bill 37 does not set out the timelines for adjudication. These will presumably be set out in Regulations. Under the comparable regime in Ontario, parties have very tight timelines to respond to the commencement of adjudication, appoint an adjudicator, present documents to the adjudicator, have the dispute heard by the adjudicator, culminating in a determination by the adjudicator within 45 days. The intent of these tight timelines is to efficiently resolve disputes with minimal impact to a project's construction schedule.
- Adjudication decisions are largely final and binding. Parties may appeal a decision under an adjudication process to Courts only on narrow grounds, such as a mistake of law, lack of jurisdiction, inexistence of a contract, lack of qualification, bias, improper procedures, or fraud. The finality of an adjudicator's decision in the proposed amendments contrasts with Ontario's Construction Lien Act, which makes an adjudicator's decision binding only on an "interim" basis. How adjudicator decisions will work alongside enforcement of lien rights in Court is unclear, and we will need to wait for the Province to publish Regulations to get clarity.
- The amended Act will grant the Minister the right to appoint "Authorized Nominating Authorities", who are responsible for training and accrediting adjudicators and maintaining a public registry of qualified adjudicators. The Authorized Nominating Authorities will be responsible for assigning disputes to individual adjudicators.
- Unlike Ontario's Construction Lien Act, which appointed only one adjudicating body, Alberta's amended Act will grant the Minister the ability to appoint more than one adjudicating body. The intent is to increase competition between adjudicating bodies to ensure reasonable costs and competency. This may, however, cause forum shopping between different adjudicating bodies.
- The amended Act will leave the Minister to establish Regulations setting the qualifications of adjudicators, the matters in dispute that can be determined by an adjudicator, the powers of an adjudicator, and the remuneration to be paid to adjudicators.
- As the types of matters that may be heard by adjudication will be set by Regulation, it is presently unclear whether Alberta will follow in Ontario in restricting adjudications to valuations of work, payment under the contract or change order, or notices of non-payment, or other matters to which the parties may agree. Complex delay claims involving expert testimony will likely be ill-fitting for adjudication.
- Parties may agree to adjudication procedures, but only to the extent that they do not conflict with the Regulations or the procedures established by the Authorized Nominating Authority.
Builders' Liens and Modernization
Bill 37 also makes many other updates and modernization changes to the Act. The new Act will amend the time limits to register a lien, allow the owner to release the lien holdback progressively, and allow all contracting parties access to information about the owner's contractual arrangements and state of accounts.
- Bill 37 will change the name of the Builders' Lien Act to the Prompt Payment and Construction Act to reflect the fact that the legislation deals with much more than just lien rights.
- For improvements to oil and gas wells and well sites, the statutory lien period remains 90 days. Whether an oil sands project is an oil and gas well or well site can frequently be unclear; consequently, it is recommended that lienholders with any doubts should register their liens within the 60-day period noted below.
- For improvements primarily relating to the furnishing of concrete as a material or work done in relation to concrete, the statutory lien period will be 90 days. The rationale for granting an extended registration period to concrete work likely stems from the period it can take for concrete to cure and be tested. Whether work related to concrete – such as formwork or rebar supply – will be included in this extended registration period is presently unclear.
- For all other improvements, the proposed Act increases the statutory lien period from 45 days to 60 days.
- An owner may, without risk, progressively release the major lien fund – the statutory holdback –either pursuant to the contract, on an annual basis (for projects lasting longer than a year), or on a phased basis specified in the contract. This right is permissive, not mandatory, so an owner can choose to retain the full major lien fund. Presently, an owner may only release the major lien fund once the contractor has issued a certificate of substantial performance, and only while there are no liens registered against the improvement. On large projects, this can result in a sizeable major lien fund that accrues for several years before it can be paid. This will be beneficial to contractors, who will see increased cash flow, but will pose risks both to owners and to subcontractors, as progressive distributions of the major lien fund will reduce their security.
- More parties are now entitled to access information. Presently, only lienholders may demand access to information; under the proposed amended Act, contractors and subcontractors who do not have a lien will also be able to access that information, along with beneficiaries of trusts.
- The minimum amount of a lien claim will be increased from $300.00 to $700.00.
- As builders' lien legislation does not apply to Crown lands, the Public Works Act will remain the relevant statute for public works contracts with the Government of Alberta. This means that the prompt payment, adjudication, and builders' lien provisions will remain inapplicable to public works.
- The proposed amendments do not currently incorporate the requirement in Ontario's Construction Lien Act for contractors entering public contracts over $500,000.00 to provide performance and payment bonds. Hence, unless required by the public tender documents, contractors on large public contracts will not be required to furnish performance or labour and material payment bonds.
Timing and Effective Date
The amendments to the Act, along with its detailed Regulations, are expected to come into force in July 2021 and would only impact contracts signed after that point. Bill 37 has many steps to go through before it becomes law, including a public consultation process.
The amendments are proposed to be effective only on any contract or subcontract "entered into on or after the coming into force of Bill 37" and Bill 37 expressly states that contracts and subcontracts entered into prior to that date are governed by the former provisions of the Act.
How Gowling WLG can help
Gowling WLG has been deeply immersed in construction law reforms across the country and in Alberta for more than 25 years. We will be holding several webinars and publishing several articles on Bill 37 and the Builders' Lien Act since the first reading of Bill 142, and will continue to monitor its progress as it becomes the new Prompt Payment and Construction Lien Act.
We are planning several educational webinars and workshops, and additional analysis of the impact of the amendments introduced by Bill 37 over the coming months to help educate and inform our clients and the industry about these changes to our sector.
We would be happy to meet with you or your organization to discuss your questions and concerns about Bill 37 and the Builders' Lien Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.