Alberta’s New Prompt Payment and Construction Lien Act: What You Need to Know Before August 29, 2022 (Consolidated)

Alberta’s New Prompt Payment and Construction Lien Act: What You Need to Know Before August 29, 2022 (Consolidated)

Alberta’s Builders’ Lien Act will soon be renamed as the Prompt Payment and Construction Lien Act (the “PPCLA”)[1]. The Government of Alberta has now confirmed that the new PPCLA will be in force on August 29, 2022. The Government has also released the accompanying regulations to the PPCLA, being the Prompt Payment and Adjudication Regulation (the “PPCLA Regulation”)[2] which prescribes a new adjudication regime under the PPCLA , and the Builders’ Lien Forms Amendment Regulation (“Forms Regulation”) which prescribes various forms of notices referenced in the PPCLA.

The PPCLA and its accompanying regulations follow a growing trend across Canada to adopt prompt payment and adjudication with the objective of facilitating timely payment down the construction pyramid.

This bulletin provides an overview of the PPCLA and PPCLA Regulation and what you need to know before August 29, 2022.

Prompt Payment Framework

What is Prompt Payment?

The PPCLA mandates timelines for payments down the construction pyramid that are triggered by receipt of a “proper invoice” given by a contractor to an owner. Once the proper invoice is received by the owner, there are different timelines for payments as follows (subject to exceptions described herein):

• by an owner to a contractor (within 28 days after receiving the proper invoice)[3],
• by a contractor to a subcontractor (within 7 days after contractor receives payment from the owner)[4], and
• by a subcontractor to its subcontractor (within 7 days after subcontractor receives payment from the contractor)[5].

Alberta’s new prompt payment regime does not affect obligations of a contractor or subcontractor to pay employees[6].

What is a “proper invoice”?

The PPCLA defines “proper invoice”,[7] as a request for payment that is in writing and includes, among other things, a description of the work done or materials furnished, the amount requested for payment, the payment terms broken down for the work done or materials furnished, a reference to the agreement under which the work or materials were provided, a statement that the invoice is intended to be a proper invoice, and any other requirements as may be specified in the contract.

A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of a person or approval of the owner is of no force or effect.[8] However, a contract may make the giving of a proper invoice subject to a provision for the testing and commissioning of the improvement, work completed, or materials furnished.[9]

Initiating the Process

By definition, a proper invoice is one given by a contractor to an owner. A contractor is defined in the legislation as a person contracting with or employed directly by an owner or owner’s agent.

To keep the flow of funds moving on a project, the PPCLA provides that the contractor must give a proper invoice to the owner at least every 31 days[10]. Subject to this 31 day limit[11], the owner and contractor may agree to specify terms when a proper invoice may be delivered.

There is an exception: If a contract includes a provision for testing and commissioning of the improvement, work done or materials furnished, and the conditions of such testing or commissioning are not met, then the proper invoice is not required to be given every 31 days.[12]

Prompt Payment: Owner to Contractor

Once a contractor submits its proper invoice to the owner, the owner must pay the proper invoice within 28 days of receipt unless the owner disputes payment, in part or in full.[13] An owner who disputes a proper invoice must deliver a notice of dispute within 14 days after receipt of a proper invoice (“Owner Dispute Notice”). The notice of dispute must be in the prescribed form[14] and must state the amount not being paid and reasons for non-payment[15] .

A contractor is required to advise its subcontractors of an Owner Dispute Notice upon receipt and without delay.[16] In turn, subcontractors who are advised of an Owner Dispute Notice are required to advise their subcontractors without delay.[17] A contractor is also required, upon request of a subcontractor, to provide the subcontractor confirmation on the date which a proper invoice was given to the owner.[18]

Prompt Payment: Contractor to Subcontractor

A contractor who receives full payment of a proper invoice from an owner must, no later than 7 days after receiving payment, pay each subcontractor for work completed or materials furnished that formed part of the proper invoice.[19] Where an owner delivers an Owner Dispute Notice, the subcontractors responsible for the work or material relating to the dispute will be paid after other subcontractors who provided work or materials that were not disputed by the owner. Any subcontractors implicated in the dispute will be paid on a proportionate basis for any amounts paid by the owner towards the work done or material furnished by those subcontractors.[20]

If an owner fails to pay the contractor for all or part of a proper invoice, the contractor is still required to pay its subcontractor for the work or materials that formed part of the proper invoice within 35 days after the date the proper invoice was given, regardless of whether the contractor was itself paid[21]. There are two exceptions to this, entitling the contractor to either defer or dispute such mandatory payment obligation. Each is triggered by a timely notice which the contractor must deliver to its subcontractor:

1. For deferral due to owner non-payment, a notice of non-payment must be in the prescribed form[22] stating that some or all of the amount payable to the subcontractor is not being paid due to non-payment by the owner to the contractor. The notice must specify the amount not being paid and the contractor must provide an undertaking to refer the dispute with the owner to adjudication no later than 21 days after the notice to the subcontractor. A copy of any Owner Dispute Notice must also be given to the subcontractor.[23]
2. For a disputed payment, a notice of dispute must be in the prescribed form[24] and specify the amount not being paid to the subcontractor and the reasons for non-payment. A notice of dispute contests the subcontractor’s entitlement to be paid for reasons other than non-payment by the owner.[25]

Each of the above notices must be delivered within 7 days after the contractor receives an Owner Dispute Notice, or if no Owner Dispute Notice is received, then within 35 days after the proper invoice is given.[26]

Prompt Payment: Subcontractor to Subcontractor

The payment process for a subcontractor to its subcontractor is very similar to the payment process as between a contractor and its subcontractor. The subcontractor must make payment to its subcontractor within 7 days of receiving payment from the contractor[27], or if it is not paid by the contractor, 42 days after the proper invoice is given by the contractor to the owner[28].

A subcontractor can also defer or dispute payment by issuing one of the two forms of notices described above in the prescribed forms[29], with the exception that a subcontractor is not required to refer the dispute with the owner to adjudication as part of its notice of non-payment. This is because the subcontractor has no contractual relationship with the owner and thus no ability to refer the dispute to adjudication. Each of the notices must be delivered within 7 days after the subcontractor receives notice of non-payment from the contractor, or if no notice of non-payment is provided to the subcontractor, then within 42 days after the proper invoice is given to the owner.[30]

Interest

Interest will be charged on any amounts included in a proper invoice that are unpaid and due.[31] The rate of interest will be in accordance with the parties’ contract, or if no rate is specified in the contract, then according to the rate provided for in the Judgment Interest Regulation, which currently prescribes interest at 0.2% per annum until December 31, 2022.[32]

Adjudication Framework

Adjudication

The PPCLA provides for an optional dispute adjudication process that either party to a contract or subcontract may initiate. Adjudication is intended to bolster the prompt payment scheme, providing for faster and less costly resolutions of payment disputes than a court proceeding.

The following matters may be subject to adjudication: the valuation of services or materials provided, payment under the contract including the payment of change orders, disputes that are the subject of a notice of non payment, payment or non payment of an amount retained as a major lien fund or minor lien fund and owed to a party during or at the end of a contract, and any other matter in relation to the contract that the parties in dispute agree to.[33]

Who are the Adjudicators?

The PPCLA provides that the Minister of Service Alberta may designate one or more Nominating Authorities to qualify and appoint adjudicators to hear disputes under the PPCLA.[34] Among other duties, a Nominating Authority will develop and oversee programs for the training of persons as adjudicators[35] and establish and maintain a code of conduct for adjudicators.[36] The Minister of Service Alberta will act as a Nominating Authority on an interim basis until one or more Nominating Authorities are designated.[37]

An adjudicator is required to obtain a certificate of qualification from a Nominating Authority before he or she can act. An adjudicator must successfully complete all training programs required by the Nominating Authority that issues a certificate of qualification to that adjudicator and comply with that Nominating Authority’s code of conduct.[38] An adjudicator must meet other requirements[39], including having at least 10 years of relevant work experience in the construction sector in the opinion of the Nominating Authority, and having sufficient knowledge in the areas of dispute resolution, contract law, legislative interpretation, determination writing, ethics, jurisdiction, and adjudication process.[40]

Commencing the Adjudication Process

To refer the dispute to adjudication, one of the parties to the contract may issue a written notice of adjudication.[41]

There are two circumstances in which a party is unable to refer a dispute to adjudication: where an action in court is commenced on or before the date that the notice of adjudication is delivered[42], and after the contract or subcontract is completed, unless the parties otherwise agree to adjudicate[43]. It will be interesting to see if the first of these results in races to commence court actions tactically undertaken by those wishing to defeat the objective of quick, cost-effective resolution which lies at the heart of adjudication.

The written notice of adjudication must include, among other things, the names and addresses of the parties in dispute, the nature of the dispute and a brief description including how and when it arose, the nature of the redress sought, the name of the Nominating Authority to whom the party serving the notice intends to submit to, and the name of the adjudicator requested to conduct the adjudication, if any.[44] A copy of the notice must then provided to the opposite contracting party and the relevant Nominating Authority on the same day.[45] A provision in a contract that purports to name a person as an adjudicator in the event of adjudication is of no force and effect.[46] Parties may agree to designate a Nominating Authority to which a notice of adjudication must be submitted.[47]

Dispute Adjudication Process and Timeline

The adjudication process from commencement to a determination is expected to take approximately 46 to 56 days. The process involves submission of a written notice of adjudication by one party and a response by the opposite contracting party, along with copies of any supporting documents.

An adjudicator has discretion to issue directions to the parties, obtain information through independent research, conduct on-site inspections, and obtain assistance from construction industry professionals. Parties to a contract can also agree to their own adjudication procedures that will apply to the extent they do not conflict with the procedures established in regulations or by a Nominating Authority.[48]

The table below provides a summary of the applicable steps and associated deadlines in the adjudication process. The adjudicator may extend any of the deadlines by a maximum of 10 calendar days.[49]

Adjudicator’s Determination

The adjudicator may refer a dispute to court if the adjudicator does not have jurisdiction to hear the matter or where the adjudicator is of the opinion that the court is the more appropriate forum for hearing the matter.[56] Assuming the adjudication proceeds, the adjudicator will then make a determination at the conclusion of the process. An adjudicator may make an order directing a party to make payment within a specified time and allowing the opposite party to stop providing services or materials if the payment is not made within the specified time.[57]

The adjudicator’s determination is binding on the parties subject to certain exceptions[58]:

1. A court order is made in respect of the matter;
2. A party applies for judicial review;
3. The parties have entered into a written agreement to appoint an arbitrator under the Arbitration Act; or
4. The parties have entered into a written agreement that resolves the matter.

The written agreements to resolve the matter or appoint an arbitrator above must be made by the parties after the adjudicator has made a determination.[59]

The determination of an adjudicator may be set aside by judicial review on certain limited grounds, including a reasonable apprehension of bias on the part of the adjudicator, a failure to follow the appropriate procedures which resulted in prejudice to the applicant party’s right to a fair adjudication, a determination made as a result of fraud, and the invalidity or ceasing to exist of the underlying contract or subcontract.[60]

Commencing an application for judicial review prevents registration and enforcement of an adjudicator’s order.[61] An application for judicial review must be commenced no later than 30 days after the date of the notice of determination issued by the adjudicator.[62] Upon registration by the Alberta court, an adjudicator’s order may be enforced as if it were a court order.[63]

The PPCLA expressly states that, except in the case of judicial review, nothing in the PPCLA dealing with dispute adjudication restricts the authority of the court or an arbitrator to consider the merits of a matter determined by an adjudicator. The PPCLA Regulation adds that any party to an adjudication may commence an action in court within 2 years after the notice of adjudication is sent.[64]

The PPCLA expressly provides that an adjudicator’s determination is binding on the parties, except where a party applies for judicial review, a court order is made in respect of the matter, the parties’ agree to appoint an arbitrator, or the parties agree to resolve the matter[65]. A contract that provides for mandatory arbitration as a mechanism for dispute resolution will not be effective to prevent enforcement of an adjudicator’s determination in the interim because the mandatory arbitration was agreed to before the adjudicator’s determination was made. However, once the parties arbitrate pursuant to the mandatory arbitration provisions, the adjudicator’s determination may be subject to the arbitral decision that reconsiders the merits of the dispute[66].

We expect that judicial guidance will help clarify the nature of an adjudicator’s determination, in particular, the circumstances where a court will reconsider the merits of an adjudicated dispute, and the interplay between mandatory arbitration provisions in a contract and an adjudicator’s determination. The existing Builders’ Lien Act prevents parties from contracting out of remedies available under the lien legislation. This same restriction will be carried forward to prevent parties from contracting out of the remedies offered by the PPCLA.

Lien Registration and Holdback Changes

Progressive Release of Holdback Mandatory on Certain Projects

The existing Builders’ Lien Act makes release of holdback contingent on the issuance of a certificate of substantial performance or completion of the project, and the absence of builders’ liens registered against the project lands. Proper invoices will remain subject to existing holdback requirements of the existing Builders’ Lien Act. However, the PPCLA mandates progressive release of holdback[67], where the:

a)   The value of the contract exceeds $10,000,000[68]; and

b)   the contract has a completion schedule that is longer than one year or the contract provides for phased release of holdback.[69]

The existing requirement that there are no builders’ liens registered on title for release of holdback to occur will apply to progressive release of holdback.[70]

New Lien Registration Deadlines

The deadline for registration of a builders’ lien under the PPCLA will now be 60 days from the last day the services or materials were supplied,[71] which is up from 45 days in the existing Builders’ Lien Act. The deadline for registration of a lien relating to the furnishing of concrete or work relating to concrete will now be increased to 90 days, up from 45 days.[72] The deadline to register a builders’ lien relating to improvements to an oil or gas well or to an oil or gas well site remains 90 days.

Application, Transition and Miscellaneous

Application

The PPCLA will not apply to “public works” as defined in the Public Works Act or agreements to finance and undertake an improvement to which the provincial Crown or an agent of the Crown is a party.[73] This application is consistent with the existing Builders’ Lien Act. The provincial Crown is thus not subject to prompt payment or the other requirements of the PPCLA. The PPCLA further provides that it will not apply to other projects or class of persons as may be prescribed.[74]

Professionals Acting in a Consultative Capacity

The PPCLA will apply to regulated professional engineers and regulated professional architects who act in a consultative capacity in respect of an improvement.[75]

Expanded Right to Information

The PPCLA expands the existing section 33 right to information in the Builders’ Lien Act. A lienholder, a beneficiary of a trust, or a contractor or subcontractor working under a contract may make a request at any reasonable time for production of the applicable contract and a statement of accounts.[76]  A statement of accounts must set out whether all or a portion of a proper invoice or other invoice has been paid, the percentage of such invoices that have been paid, and the date on which the amounts were paid.[77] Demands may be made to the owner, contractor, or a subcontractor, depending on the information being sought.[78]

Transition

The old Builders’ Lien Act will continue to apply to contracts entered into prior to August 29, 2022,[79] unless such contracts are amended in order to conform with the PPCLA.[80] There is one exception: any contracts entered into prior to August 29, 2022 and scheduled to remain in effect for more than 2 years after August 29, 2022, must be amended to confirm with the PPCLA before August 29, 2024.

Takeaways

These are the key takeaways for construction industry stakeholders to consider prior to August 29, 2022:

1. The introduction of a prompt payment and adjudication regime will change how construction is done in Alberta. The frequency of invoicing and the timing of payments upon those invoices will be regulated. Any disputes involving payment will potentially be subject to quick determinations made in real time, not years after the project is completed.
2. In order to both understand their obligations and their potential remedies under this new legislation, parties will need to educate themselves and adjust their internal processes as necessary. Among other things, there will be notices of non-payment and notices to dispute payment which will be required to be delivered in prescribed form and within prescribed deadlines. Invoicing by contractors to owners will need to conform to the “proper invoice” requirements of the legislation.
3. Parties should consider how the new regime may impact their project financing. In effect, the requirement to pay parties within prescribed time periods means that project financing will reside firmly where it belongs, with the owner.
4. Parties should be aware of the potential impediments to adjudication and enforcement sitting with the legislation. An adjudication can be thwarted by a party commencing a court action on or prior to the date that a notice of adjudication is delivered. Enforcement of an adjudicator’s determination can be stalled if a party applies for judicial review, which in Alberta will typically take 3 months or longer before it is heard. As of the date of this article, a half day Justice civil hearing date for both Calgary and Edmonton is scheduling into November and December, 2022.
5. Stakeholders should take careful note of the changes to the lien remedy, including the extended lien registration periods and the mandatory progressive release of holdback.
6. Existing standard form construction contracts should be examined and updated to align with the new legislation. For example, contracts should be reviewed to cover any party-specific or project-specific additional “proper invoice” requirements which the prime contract must contain and which the underlying subcontracts should support. Other areas to examine include invoice delivery and vetting procedures necessary to enable owner review within the timelines prescribed for payment, coordination of any testing and commissioning provisions with the timing of invoice delivery, payment terms, and any adjudication procedures beyond those stipulated.

McMillan’s National Construction Group is well equipped to navigate Alberta’s new legislation on behalf of any industry participants or affected parties.

[1] Builders’ Lien (Prompt Payment) Amendment Act, SA 2020, c 30 (“PPAA”), s. 2; Prompt Payment and Construction Lien Act, RSA 2000, c P-26.4 (“PPCLA”).
[2] Prompt Payment and Adjudication Regulation AR 23/2022 (“PPCLA Regulation”); Builders’ Lien Forms Amendment Regulation, AR 22/2022 (“Forms Regulation”).
[3] PPCLA, s 32.2(1).
[4] PPCLA, s 32.3(1).
[5] PPCLA, s 32.5(1).
[6] PPCLA, s 32.7.
[7] PPCLA, s 32.1(1).
[8] PPCLA, s 32.1(3).
[9] PPCLA, s 32.1(4).
[10] PPCLA, s 32.1(6).
[11] PPCLA Regulation, s. 3.
[12] PPCLA, s 32.1(6).
[13] PPCLA, s 32.2(1).
[14] Forms Regulation, Form 1.
[15] PPCLA, s 32.2(2).
[16] PPCLA, s 32.4(1).
[17] PPCLA, s 32.4(2).
[18] PPCLA, s 32.5(10).
[19] PPCLA, s 32.3(2).
[20] PPCLA, s 32.3(3).
[21] PPCLA, s 32.3(4).
[22] Forms Regulation, Form 2.
[23] PPCLA, s 32.3(5)(a).
[24] Forms Regulation, Form 3.
[25] PPCLA, s 32.3(6).
[26] PPCLA, s 32.3(7).
[27] PPCLA, s 32.5(1).
[28] PPCLA, s 32.5(5).
[29] Forms Regulation, Forms 4 and 5.
[30] PPCLA, s 32.5(8).
[31] PPCLA, s 32.1(6).
[32] PPCLA Regulation, s 3.
[33] PPCLA Regulation, s 19.
[34] PPCLA, s 33.2(1).
[35] PPCLA, s 33.2(1)(d).
[36] PPCLA Regulation, s 10.
[37] PPCLA, s. 33.3.
[38] PPCLA Regulation, s 8.
[39] PPCLA Regulation, s 7(2).
[40] PPCLA Regulation, s 7(2).
[41] PPCLA Regulation, s 20(1).
[42] PPCLA, s 33.4(1), 33.4(3).
[43] PPCLA, s. 33.4 (2)
[44] PPCLA Regulation, s 20(1).
[45] PPCLA Regulation, s 20(2).
[46] PPCLA Regulation, s 20(3).
[47] PPCLA Regulation, s 21.
[48] PPCLA, s 33.5.
[49] PPCLA Regulation, s 25(3).
[50] These total calculations do not take into account non-calendar days elapsed where a deadline is calculated using calendar days. Calendar days are effectively defined to mean business days in s. 1(b) of the PPCLA Regulation.
[51] PPCLA Regulation, s 22(1)
[52] PPCLA Regulation, s 22(2).
[53] PPCLA Regulation, s 23.
[54] PPCLA Regulation, s 24.
[55] PPCLA Regulation, s 26(1).
[56] PPCLA, s 33.6(2).
[57] PPCLA Regulation, 26(2).
[58] PPCLA, s. 33.6(5).
[59] PPCLA Regulation, s 1(2).
[60] PPCLA Regulation, s 34.
[61] PPCLA, s 33.61(b).
[62] PPCLA, s 33.8.
[63] PPCLA, s 33.61(2).
[64] PPCLA Regulation, s 33.
[65] PPCLA, s. 33.6 (5)
[66] PPCLA, s. 33.6 (6)
[67] PPCLA, s 24.1.
[68] PPCLA, s 24.1(2)(b); PPCLA Regulation, s 2(2).
[69] PPCLA, s 24.1(2)(a).
[70] PPCLA, s 24.1(c).
[71] PPCLA, s 41.
[72] PPCLA, s 41.
[73] PPCLA, s 1.1.
[74] PPCLA, s. 1.1(2), 1.1(3).
[75] PPCLA Regulation, s 35.
[76] PPCLA, s 33.
[77] PPCLA Regulation, s 5.
[78] PPCLA, s 33(3).
[79] PPCLA, s 74(1).
[80] PPCLA, s 74(3).

by Preet Saini, Jamieson Virgin, Geza Banfai, Brett Baker, Jason Annibale

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2022