Federal Government Continues the Prompt Payment Trend

Federal Government Continues the Prompt Payment Trend

On December 9, 2023 the federal Prompt Payment for Construction Work Act (Act) came into force.

The decision to move forward with a prompt payment regime applicable to federal government construction and infrastructure projects continues the push toward the use of prompt payment and adjudication mechanisms across the country. Ontario, Alberta, and Saskatchewan have also implemented prompt payment legislation, while others (Nova Scotia, Manitoba, and New Brunswick) have legislation that has yet to come into force.

Given the limited scope of federal jurisdiction over construction matters, the Act will affect only projects involving federal real property or federal immovables. Nevertheless, federal government projects are substantial employers and can be very large in scope, involving numerous general and subcontractors at a given time. Projects on military establishments, airports, ports, bridges, and other areas of federal jurisdiction may be affected.

Payment

The federal Act’s key requirements somewhat mirror those in existing provincial legislation.
Under the Act, the federal government will have 28 calendar days to pay after the contractor submits a proper invoice. The contractor will then have 7 days to pay its subcontractors, subcontractors will have another 7 days to pay their sub-subcontractors, and so on down the contracting payment chain.

Where the federal government declines to pay some or all of an invoice, it must provide notice of non-payment within 21 days of receipt of that applicable invoice. A contractor declining to make payment must notify the applicable subcontractor within 28 days of receipt of the applicable invoice. Where a subcontractor declines to pay, it must notify a sub-subcontractor within 35 days of receipt of the applicable invoice. Timing continues with additional 7-day periods further down the chain.

Adjudication

As in Ontario, Alberta and Saskatchewan, the federal Act establishes an adjudication regime. Notably, however, adjudication under the federal Act is not mandatory.

If a contractor or subcontractor has not been fully paid for its construction work within the time limit for payment provided under this Act or, when applicable, the shorter time limit set out in its contract, that contractor or subcontractor may refer the matter to adjudication and seek a determination with respect to the non-payment.

Notices of adjudication must be provided no later than the 21st day after the later of the following:

1. the day on which the contractor receives a certificate of completion with respect to the construction project; and
2. if any of its construction work is covered by the last proper invoice submitted with respect to the construction project, the expiry of the time limit provided under the Act for payment for that work.

An adjudicator’s determination will be binding unless the parties come to a written agreement or the determination is set aside by a court order or arbitral award. Courts or arbitrators will have jurisdiction to consider any adjudicated matter on its merits, meaning that they will not be bound to a particular standard of review.

Timing

Beginning December 9, 2023, all existing construction contracts will have 1 year, to comply with the Act. While the Act provides a reasonable lead-in time, contractors on federal projects should begin taking steps early in 2024 to ensure that their payment mechanisms comply with the Act.

Deference to Provincial Legislation

To limit uncertainty and ease with the Act’s implementation, the Act gives the federal government that ability to designate a province or territory if that jurisdiction already has a “reasonable similar” prompt payment and adjudication regime in place – presently Ontario, Alberta and Saskatchewan.

Where that designation occurs, federal construction projects in those provinces will be exempt from the Act’s prompt payment regime and will, instead, must comply with legislation in the applicable province.

The Context

The federal prompt payment regime comes into force amidst uncertain economic conditions and while its impact will be limited in provinces which already have a provincial regime, the Act should provide certainty and consistency for construction contractors working on federal projects.

by Kyle Lambert and Jessica Brandon-Jepp

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 2023