There’s a lot of buzz around Canada’s prompt pay legislation. Prompt payments laws are authorized to create exact timeframes for payments between owners, contractors, and subcontractors.
The Federal Prompt Payment for Construction Work Act was introduced to promote the orderly and timely carrying out of construction projects in respect of any federal real property or federal immovable by addressing the non-payment of contractors and subcontractors who perform construction work for the purposes of these projects. In short, the law alleviates construction payment delays.
Under Canada’s prompt payment law, proper invoices must contain at least the following information:
- Contractor’s name and address
- Invoice date + date range of the invoice
- Name of federal authority purchasing the work
- Quantity and description of the materials or work provided
- Total amount due and payment terms
- Mailing address and phone number of the person to send payments to
- Any other requirements specified by the contract
Prompt Payment Goals:
- Speed up construction payments & improve cash flow.
- Offer protection for construction companies working on federal projects.
- Launch a system that resolves disputes over late payments.
- Avoid court for adjudicating payment issues.
Prompt payment regulations have been presented and approved in Canadian provinces. Ontario has set the standard; the province has enforced prompt payment since October 2019 and the early consensus is that the law works and construction workers are being paid faster. Dan Leduc, a partner with Norton Rose Fulbright Canada LLP, says that Ontario’s approach shows the advantage of laws of this nature because more cash flow enables contractors to develop their own construction companies and expand.
Prompt Payment Enforcement Since October 2019
In 2019, Ontario introduced prompt payment and adjudication to the Construction Act. Ontario’s prompt payment requires the owner to pay within 28 calendar days or to dispute within 14 calendar days, describing the reasons for non-payment. In turn, the contractor must either pay its subcontractors within 7 calendar days of receipt of payment or send notices of dispute within 7 calendar days.
Prompt Payment Enforced Since March 2022
On March 1, 2022, Saskatchewan became the first western and second Canadian providence to require prompt payment and mandatory adjudication. The new law was layered onto the standing lien regime and will be known as The Builders’ Lien Act.
The act mandates payment by owners to contractors within 28 days of receiving a monthly proper invoice from contractors. Once contractors receive payment, they’ll have 7 days to pay their subs. Under the prompt payment law, adjudication is available to resolve prompt payment disputes.
Prompt Payment Coming In August 2022
Alberta will enforce Bill 37 in August 2022. Bill 37 is The Builders’ Lien (Prompt Payment) Amendment (Act). Bill 37 outlines that the time for registering liens in the construction days will be extended to 60 days, the implementation of the prompt payment regime which relies on the concept of a proper invoice to trigger timelines for payment and adjudication of disputes, and that the Builders’ Lien Act will be renamed the Prompt Payment and Construction Lien Act.
🇨🇦 Nova Scotia
No Legislation on Prompt Payment
The Novia Scotia legislature introduced Bill 119 proposing amendments to the NS Builders’ Lien Act to include prompt payment in 2019. The proposed new prompt payment laws are focused on avoiding payment delays to contractors and subcontractors. If Nova Scotia follows Ontario’s lead, the prompt payment timelines would be about 4 weeks following receipt of the invoice for owners paying general contractors and 1 week following receipt of payment from the owner for GCs paying subs.
🇨🇦 British Columbia
No Legislation on Prompt Payment
Even though in May 2019 Bill M 223 was introduced in British Columbia to modernize its construction payment legislation, it did not pass.
Impact on Progress Claims
A progress claim application will be considered approved on the 10th day after its receipt when submitted by a contractor unless a written notice of dispute is provided. Any payment dispute must come in the form of written notice and explain the reasons and amount of the dispute.
Does the US have prompt payment laws?
Yes, the US has a Federal Prompt Payment Act (PPA). The US PPA protects all tiers of contractors, subcontractors, and suppliers from late payments on federally funded construction projects.
In the US, the government must pay contractors within 14 days of receipt of a proper invoice, compared to Canada’s 28-day requirement. In both the US and Canada, subcontractors must be paid within 7 days after the contractor receives payment.
Slow payments are an issue worth regulating. For now, only Ontario and Saskatchewan have enforced prompt payment legislation, with Alberta soon to follow. The Prompt Payment Act is something contractors and subcontractors should be excited about!