In past issues of this newsletter, we have commented on the forthcoming prompt payment and adjudication regimes in Ontario. Ontario is not alone in addressing prompt payment. On the provincial level, Manitoba and New Brunswick have issued reports on the modernization of their lien legislation which address prompt payment. Quebec is introducing a pilot project to test prompt payment in public contracts. Saskatchewan is currently conducting a review of its legislation and invited stakeholders to comment on the desirability of adopting Ontario-style reforms.
On the federal level, “Building a Federal Framework for Prompt Payment and Adjudication,” a report prepared for Public Services and Procurement Canada on June 8, 2018, was released. The purpose of the review was to provide the Canadian government with recommendations for the implementation of prompt payment and adjudication on federal construction projects.
The report concludes that the existing federal framework for prompt payment policies is inadequate, and implementation of federal prompt payment legislation would be beneficial. Legislation similar in many ways to Ontario’s new Construction Act is recommended. Parties to construction contracts would not be able to contract out of this proposed legislation.
Applicability of the Proposed Legislation
The report recommends that the federal prompt payment legislation should:
- apply to federal construction projects on land owned by the federal government
- apply to “lands reserved for Indians,” as used in the Constitution Act, 1867
- apply to construction projects that are a part of a federal undertaking or of general public importance
- apply to projects designated by a minister at the beginning of the project
- not apply to maintenance and repair work under long term contracts
- not apply solely on the basis that the federal government funded the project
- not apply to projects solely on the basis that the federal government has a specific regulatory authority
- not apply to fix up work for leased buildings
The proposed prompt payment provisions apply to the entire construction pyramid, and the timelines follow those set out in Ontario’s Construction Act. The trigger for payment will be the delivery of a “proper invoice,” following which a federal owner must pay the general contractor within 28 days, and parties below the general contractor on the construction pyramid must pay their subcontractors within 7 days from receipt of payment. The time limits will also apply to payment in relation to substantial performance of the work and final completion. Parties are otherwise free to contract for payment terms. There will be a provision that makes the giving of a proper invoice conditional on the prior certification of a payment certifier or the owner’s approval of no force and effect, with the exception of P3 projects.
Payers can deliver a notice of non-payment within 14 days after receipt of the proper invoice as long as the notice of non-payment sets out the amount that is being withheld and sufficient explaining details. Parties who withhold payment after receiving a notice of non-payment must undertake to adjudicate.
Consequences of failure to pay include the right to start an adjudication, mandatory interest, the right to suspend work without breach if an adjudicators’ decision is not paid within 10 days, and resumption of work after suspension, conditional on payment, interest, and reasonable costs incurred by the payee from the suspension.
The federal government of Canada keeps its current right to set-off. Payers below the owner will still be allowed to set off all outstanding debts.
Provisions for adjudication are meant to provide targeted dispute resolution to specific payment dispute issues. Any party in the construction pyramid can start an adjudication from the start of the project to final completion of the prime contract, but not after the contract’s completion.
A single adjudicator with defined experience in the construction industry who has successfully completed training and certification run by an Authorized Nominating Authority is selected by the parties very shortly after the dispute arises. The Authorized Naming Authority, once created, will be responsible for training and certifying adjudicators, regulating conduct, addressing complaints, and appointing an adjudicators when the parties are unable to select one within the prescribed time, among other things.
The adjudication will be limited to one issue, unless the parties agree to consolidation. Each party is generally responsible for its own costs. Parties can subsequently litigate or arbitrate their disputes because an adjudicator’s decision is binding on an interim basis only. Judicial review of decisions is allowed on limited specified grounds.
Timelines for the adjudication are as follows:
- A notice of adjudication is delivered by the claimant, which includes a description of the dispute, the remedy sought and a proposed adjudicator, among other things
- If parties agree on an adjudicator, the adjudicator has four days to agree to conduct the adjudication
- If the parties do not agree to an adjudicator within the specified time frame, the Authorized Nominating Authority has seven days to appoint an adjudicator after receiving the request
- After the adjudicator receives documents from the claimant, the responding party has a right of reply with in a specific time period
- 30 days after receiving documents, the adjudicator should make a determination
- After a decision, payment should be made within ten days, otherwise a right to suspend work and mandatory interest arise
The report suggests that the Standard Federal Government Construction Contract should allow for a request-based disclosure requirement where payees can request and receive defined information. Contracts between the federal government and its consultants should be updated to ensure prompt payment and adjudication timelines and to include the requirement that a consultant review payment applications and change order requests prior to the deadline for issuance of a notice of non-payment.