Bill 37 Prompt Payment Legislation: The Unclear Adjudication Process

 by Kathleen Garbutt

The Alberta Government has promised to enact the new Prompt Payment Amendment Act, often referred to as “Bill 37”, in July 2021. One of the major changes introduced in Bill 37 is the implementation of an adjudication system to resolve payment disputes.

What We Know

The current version of Bill 37 lacks detail with respect to what the adjudication process will look like. Here is what we know.

The Minister of Service Alberta will appoint “Authorized Nominating Authorities” who will be able to assign third party adjudicators to disputes.

Although the adjudications are intended to be a final and binding process, the parties to the adjudication process will still have the option to register a builders’ lien and enforce the lien through the Court process.

Parties to a contract may refer matters to adjudication “respecting any prescribed matter”. There is no information yet with respect to what will be included in the list of “prescribed matters”. Adjudications will be conducted in accordance with the procedures set out in the Regulation or as established by the Authorized Nominating Authority.

The Adjudication process is not mandatory; however, either party (owner or subcontractor) may refer a dispute to adjudication. Once a matter is referred to adjudication, the adjudicator’s decision is final and binding. The adjudicator’s decision is subject to judicial review or appeal only in limited circumstances such as where the adjudicator made a mistake of law or did not follow the procedures for adjudication.

Where a contract contains a dispute resolution clause that provides for adjudication this clause will apply only to the extent it does not conflict with the Regulations which govern the Bill 37 adjudication process. Where there is a conflict between a contract and the Regulations, the Regulations will apply.

Bill 37 has received royal assent and proclamation is expected in the summer of 2021.

What We Are Still Learning

The Regulation with respect to the adjudication process has not yet been released. Without this information it is impossible to know exactly what the adjudication process will look like. However, Ontario has already implemented legislation similar to Bill 37 which includes an adjudication process.

In Ontario adjudications are conducted through the Ontario Dispute Adjudication for Construction Contracts. Unlike the proposed process in Alberta, the adjudicator’s decision in Ontario is an interim decision and therefore not binding on the parties. 

Also in contrast to Ontario, Alberta has provided for the appointment of multiple nominating authorities and these may include private entities.

In Ontario parties to a construction contact may apply for adjudication with respect to the following categories of disputes:

1. The valuation of services or materials provided under the contract;
2. Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order;
3. Disputes that are the subject of a notice of non-payment (i.e. disputed invoices);
4. Payment of a holdback;
5. Non-payment of holdback; and
6. Any other matter that the parties to the adjudication agree to, or that may be prescribed.

Likely, the “prescribed matters” that can be referred to an adjudicator in Alberta will be of a similar nature.

Although the adjudication process in Ontario has been in place for a while now, industry experience with the process is still quite limited, as there appears to be a strong tendency to seek a negotiated resolution prior to adjudication. Perhaps this is an indication that the legislation is meeting the objective of promoting early resolution, albeit not directly through the adjudication process.

What’s Next?

This is a new concept and we are still learning about the benefits and consequences of this scheme. It appears that the goal of the adjudication process is to provide a quick and cost-effective means for parties to resolve disputes without the need to resort to the Courts. Although this is an attractive concept, the final and binding nature of this process can leave parties who are unhappy with the outcome of an adjudication with little recourse.

We will continue to monitor the development of Bill 37 and provide updates.

To review Bill 37 click here.

To review our previous articles on Bill 37 follow the links below: 

• Pay What You Owe – Proposed Changes to the Builders’ Lien Act Regarding Prompt Payment
• A First Look at Alberta’s Proposed Prompt Payment Legislation
• Bill 37: Proposed Prompt Payment Legislation

Pay What You Owe – Proposed Changes to the Builders’ Lien Act Regarding Prompt Payment

 by Corbin Devlin & Moe Denny

On October 21, 2020 the Province introduced Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020 (“Bill 37”), which contained a number of significant changes to Builders’ Lien Act, RSA 2000, c B-7, renamed under Bill 37 to the Prompt Payment and Construction Lien Act (the “Act”). Upon reading Bill 37 many at our office were left scratching their heads as the Bill contains a number of loose ends, which is why we weren’t surprised to hear that the Province released further amendments to the Bill on November 4, 2020.

The purpose of this article is to review the prompt payment provisions of Bill 37; we will discuss the adjudication and other provisions separately.

Bill 37 initially appeared to leave Contractors at significant risk of having to pay Subcontractors prior to receiving corresponding payment from the Owner. Amendments have addressed this initial concern. As amended on November 4, 2020, Bill 37 now largely mirrors the similar legislation already in force in Ontario. Though still not in effect, the proposed changes will have significant implications for construction businesses, one of the most significant changes being the introduction of the concept of “proper invoices” and prompt payment provisions.

Proper Invoices

Bill 37 introduces the requirement of a “proper invoice”, which is a critical first step in the prompt payment process. A proper invoice is: “a written bill or other request for payment for the work done or materials furnished in respect of an improvement under a contract or a subcontract.” According to section 32.1(1) of Bill 37 a proper invoice must contain:

1.       the Contractor’s name and business address;

2.       the date of the proper invoice and the period during which the work was done or materials were furnished;

3.       information identifying the authority, whether in a written or verbal contract or otherwise, under which the work was done or materials were furnished;

4.       a description of the work done or materials furnished;

5.       the amount requested for payment and the corresponding payment terms broken down for the work done or materials furnished;

6.       the name, title and contact information of the person to whom the payment is to be sent;

7.       a statement indicating that the invoice provided is intended to constitute a proper invoice; and

8.       any other information that may be prescribed.

Proper invoices must be given to an Owner at least every 31 days, unless the contract includes a provision for the testing and commissioning of work or material.

It should also be noted that the prompt payment clock begins on delivery of the proper invoice.

Payment by Owner

According to section 32.2 of Bill 37, upon receipt of a proper invoice, Owners must pay Contractors the amount payable under a proper invoice within 28 days, unless within 14 days of receipt of the proper invoice the Owner provides a Notice of Dispute in the prescribed manner (specifying the amount not being paid and detailing all reasons for non-payment). Any amounts not identified in the Notice of Dispute must be paid within the 28 calendar day period. If a Notice of Dispute is not provided, the amount claimed in the proper invoice must be paid in full.

Though not specified under Bill 37, the requirement that a Notice of Dispute detail “all reasons for Non-Payment”, suggests that an Owner may not be able to contest proper invoices by relying on reasons not specified in the Notice of Dispute. It will remain to be seen whether it will be permissible to rely on reasons for Non-Payment that are not contemplated at the time of submitting the notice.

Payment by Contractors

Where a Contractor receives a Notice of Dispute from the Owner, the Contractor can deliver a corresponding Notice of Non-Payment in the prescribed form to any Subcontractors affected by the dispute – otherwise the Contractor is obligated to pay its Subcontractors within 35 days of the issuance of the proper invoice. Where the Owner does not pay, the Contractor, when issuing the Notice of Non-Payment to its Subcontractors, must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the Subcontractor.

On the other hand, if a Contractor receives a partial payment from an Owner they will have three options: (1) the Contractor may pay on a proportionate basis the amount received within 7 days and deliver a Notice of Non-payment in the prescribed manner; (2) pay on a proportionate basis the amount received within 7 days and pay the Subcontractor the balance within 35 days (even if not received from the Owner); or (3), deliver a Notice of Non-Payment to the Subcontractors for the entire amount. 

Payment by Subcontractor

The concept of prompt payment applies to all tiers, from Owner to Subcontractors. A Subcontractor who after providing a proper invoice receives full payment from a Contractor is in turn required to pay its Subcontractors within 7 days of receipt of the payment. If the Subcontractor chooses not to pay, it must ‎deliver a Notice of Non-Payment within 42 days of the date the proper invoice was given by the Contractor to the Owner.

If the Subcontractor has ‎received a Notice of Non-Payment from the Contractor, it must within 7 days of receiving the notice from the Contractor deliver its own Notice of Non-Payment to its Subcontractors, and must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the subcontractor. If it does not, it must pay its Subcontractors within 42 days of the proper invoice being given by the Contractor to the Owner.

Additional Considerations

Considering the above, it is important that proper invoices be accurate; nevertheless, revisions can be made to proper invoices if:

1.       the parties to the proper invoice agree to a revision;

2.       the date of the proper invoice is not changed; and

3.       the proper invoice continues to meet the requirements (noted above).

Lastly, proper invoices must be properly served on the corresponding party. To constitute proper service, the proper invoice must be served in any manner permitted by the Act or the Alberta Rules of Court, Alta Reg 124/2010 (“Rules”). Some manners of service permitted by the Rules include personal service, registered mail, and electronic methods.

Are You Ready for the Change?

If passed, Bill 37 and the corresponding prompt payment provisions will take effect on proclamation, and are sure to bring a cultural shift to the construction industry in Alberta, with cash flowing more quickly from owners, to contractors to subcontractors, and so on.

In light of the significant changes proposed, members of the construction industry should review Bill 37 to ensure they understand the requirements of preparing and delivering “proper invoices”, payment, or notices within the appropriate time periods.

Additionally, to prepare for the likely passing of Bill 37, members of the industry should consult legal counsel for guidance on revising contacts and updating project management and documents management systems.

Please feel free to contact Moe Denny, Corbin Devlin, or any member of our Construction Industry Group in regards to the information above or any other construction law matter.

A First Look at Alberta’s Proposed Prompt Payment Legislation

By Graham Henderson

Last week the Government of Alberta introduced Bill 37, which proposes new rules relating to issues such as builders’ liens, payment terms, invoicing, and dispute resolution in the construction industry. Below, we highlight the key changes that are proposed in Bill 37.

Payment & Invoicing

Bill 37 is intended to implement a regime providing prompt payment for construction work performed in Alberta. In this regard, Bill 37 introduces new deadlines for payment of invoices and new restrictions on payment terms in construction contracts. The key changes relating to payment and invoicing are as follows: 

1. Owners, contractors and subcontractors will be required to pay “proper invoices” within 28 days after receipt. 
2. Bill 37 defines a “proper invoice” for the construction industry, and sets out the minimum requirements for the content of a proper invoice.
• For example, under Bill 37, proper invoices will need to include specific information such as (i) a description of the work or materials provided, (ii) the period of time during which the work or materials were provided, and (iii) the authority (whether in a written or verbal contract or otherwise) for the work or materials to be provided.
3. Construction contracts will be prohibited from including ‘pay-when-paid’ clauses (clauses stating that a person is not obligated to pay a subcontractor until after that person receives payment). 
4. Construction contracts will be prohibited from requiring certification from a person or approval from an owner before a proper invoice can be issued. However, prior certification or approval will be permitted in contracts for testing and commissioning. 
5. With respect to the mandatory 10% holdback currently required under the Builders’ Lien Act, Bill 37 expands on existing provisions regarding progressive release of the holdback over the course of a project (under current rules, a progressive release is permitted through certificates of substantial performance) by providing an additional mechanism for progressively releasing the holdback. 
• Pursuant to the new mechanism, a progressive release of the holdback will be allowed when specific requirements are met. For example, such requirements include that (i) the contract price would need to exceed a certain amount (that amount is not yet prescribed by the Government of Alberta), and (ii) the construction contract would need to include certain terms expressly permitting the progressive release of the holdback.
  

Disputes & Adjudication

Bill 37 provides new rules relating to dispute resolution, including a new dispute adjudication regime. The key changes relating to dispute resolution are as follows: 

1. Owners, contractors and subcontractors have 14 days to issue a notice disputing a proper invoice.
2. With respect to partially disputed invoices, Bill 37 will require owners, contractors and subcontractors to release payment of the undisputed portion of a proper invoice. 
3. Bill 37 will establish a new dispute adjudication system intended to provide an alternative to resolving disputes through the Courts. Some details of the adjudication system are as follows: 
• A party to a contract or subcontract may refer a dispute to adjudication.  
• A party may only refer to adjudication a dispute with the other party to their contract or subcontract. Therefore, entities involved in a project but not contracted with each other will be unable to adjudicate with each other (for example, a subcontractor and the owner’s consultant will be unable to adjudicate). 
• The adjudication procedures in Bill 37 override any contrary adjudication procedures in a construction contract. 
• An adjudication must be performed by a qualified adjudicator, appointed by a Nominating Authority that will be established by the Minister of Service Alberta. 
• The determination of a matter by an adjudicator is final and binding on the parties, except that it may be reviewed by the Court on certain grounds through an Application for judicial review.

4. Further rules for the dispute adjudication system, such as the procedures for conducting an adjudication, will be provided in regulations established by the Government of Alberta and in procedures established by the Nominating Authority.  

Builders’ Liens

Bill 37 mostly leaves the current builders’ lien procedures unchanged. However, Bill 37 does modify lien deadlines and the minimum amount of a lien claim:

1. The deadline for registering liens for the concrete industry is extended from 45 days to 90 days. Oil and gas well projects will also have a deadline of 90 days, which is consistent with the current rules in Alberta.
2. The deadline for registering liens for the rest of the construction industry is extended from 45 days to 60 days.
3. The minimum dollar value of a lien claim is increased from $300 to $700.

Other Information and Changes

In addition to the changes outlined above, the following information and changes are noteworthy:

1. Alberta’s Builders’ Lien Act will be renamed to the Prompt Payment and Construction Lien Act.
2. Bill 37 expands the availability of information requests relating to a construction project. Specifically, additional people involved with a project (not just the lienholder, as is the case under Alberta’s current rules) will be allowed to request information such as statements of accounts, contracts and mortgage terms.
3. The new rules proposed in Bill 37 will not apply retroactively. They will only apply to contracts entered into after the rules come into force.
4. The proposed changes do not apply to projects that would not have been governed by the Builders’ Lien Act.

If Bill 37 passes, then the next step will be for the Government of Alberta to develop regulations associated with Bill 37. Service Alberta currently intends to bring the new rules into force in July 2021.

McLennan Ross LLP will update you when any developments occur and when the new rules come into force. In the meantime, McLennan Ross LLP will be providing additional articles, information and analysis on the changes proposed in Bill 37.

Previous Posts regarding Bill 37: 

Bill 37: Proposed Prompt Payment Legislation - October 22nd, 2020

UPDATED: Trends in Prompt Payment Legislation - September 4th, 2019

 

Bill 37: Proposed Prompt Payment Legislation

Editors note: As this topic evolves, our team will continue to provide updates and commentary. Our most recent article pertaining to this subject can be found here.

  By Graham Henderson and Corbin Devlin

The Alberta Government has introduced Bill 37, which proposes wide-ranging changes to the Alberta Builders’ Lien Act. The Act is proposed to be renamed the Prompt Payment and Construction Lien Act.

The amendments are focused on addressing payment timelines in the construction industry. If passed, the changes will impact a wide variety of topics, such as lien registration deadlines, pay-when-paid clauses, and holdback rules.  As mentioned in the Alberta Construction Law Blog, this proposed reform follows the example of other Canadian jurisdictions.  However, the Bill is custom tailored to Alberta, based on priorities identified in recent consultations by Service Alberta, as well as existing features of the Builders’ Lien Act that are unique to Alberta.

More information on Bill 37 is outlined in the press release issued by the Alberta Government.

McLennan Ross LLP will be providing further details and commentary on Bill 37 in the near future.

 

Builders'/Mechanics and Miners Liens for Unpaid Contractors and Vendors in Alberta and the Northwest Territories

By Christopher Buchanan and Graham Henderson

During this time of economic uncertainty, it has become increasingly important for companies across Alberta and the Northwest Territories to remain informed about methods for safeguarding their claims for payment. One such method is through the use of statutory liens. Contractors, subcontractors, suppliers and labourers who have not been paid for their work or materials may be able to register liens against the property where they supplied the work or materials may be able to register liens against the property where they supplied the work or materials. Liens secure the unpaid party's claim against the property and may ultimately result in a forced sale of the property to have the debt paid.

Based on questions we have received from a number of clients, we have prepared a brief primer on Builders' Liens including mineral liens (under Alberta's Builders' Lien Act) in Alberta, and Mechanics Liens (under NWT's Mechanics Lien Act) and Miners Liens (under NWT's Miners Lien Act) in Northwest Territories. 

ALBERTA

Builders' Liens: Overview

Builders' Liens  are created by the Builders' Lien Act. This type of lien is available to persons who have not been paid for their supply of work or materials in respect of an improvement associated with lands or the recovery of minerals. The value of a Builders' Lien is limited to the price of the unpaid work or materials. 

"Work" includes the performance of services. For example, a supplier of rental equipment for a construction project is often providing a “service” that entitles the supplier to register a lien. However, there has been extensive judicial consideration of the question of whether or not any particular activity allows for lien registration. The answer to that question will ultimately depend on the nature of the activity and the manner in which the activity relates to the lands.

Builders’ Liens must be registered within 45 days (or 90 days in the case of work or materials supplied to an oil or gas well site) from the date the last work or materials were supplied or the contract for the work or materials was abandoned.

Builders’ Liens expire 180 days after being registered, unless the lienholder has commenced an action to realize the claim of lien and a Certificate of Lis Pendens is registered with the Land Titles Office.

A registered Builders’ Lien secures the unpaid party’s claim against the property to which the lien is attached. If funds are paid to the lienholder or the court to satisfy the debt, then the Builders Lien may be cancelled. If the court orders the sale of lands to which a lien is attached, then the proceeds from the sale would be distributed among all creditors with claims registered against the lands, in order of priority.

Surface Liens

A Builders’ Lien attaches to the “owner’s” interest in the lands. The definition of an “owner” under Alberta’s Builders’ Lien Act is broader than the common sense meaning of “owner”; as a result, in some cases liens may be registered against interests other than those of the actual registered land owner. For example, a lien may be registered against a tenant’s interest if the work is done for the tenant.

A Builders’ Lien associated with work or materials supplied in respect of the surface of the lands (as opposed to work or materials supplied in respect of minerals – discussed below) must be registered with the Land Titles Office.

Recovery of Minerals

When a person supplies work or materials in relation to an improvement associated with the recovery of minerals, then a Builders’ Lien may be registered in respect of those minerals. In such a case, the Builders’ Lien would attach to an interest in the minerals.

If the minerals are privately owned, then the Builders’ Lien must be registered as usual, at the Land Titles Office. If the minerals are owned by the Crown, which is the case with most minerals in Alberta, then the Builders’ Lien must be registered with the Minister of Energy, as opposed to at the Land Titles Office. The same deadlines apply to the Builders’ Liens, regardless of whether they are registered with the Minister of Energy or the Land Titles Office.

A Builders’ Lien in respect of minerals also attaches to the minerals after they are severed from the land.

Notably, it is possible for the supply of work or materials to entitle a lien claimant to register liens against interests in both lands and minerals (for example, where the project relates to an improvement to the surface and the recovery of minerals).

NORTHWEST TERRITORIES

Mechanics Liens

Mechanics Liens are created by the Mechanics Lien Act. This type of lien is available to contractors, subcontractors, and labourers who have not been paid for work done, materials or machinery supplied, or labour performed in connection with the owner’s building or land. Mechanics Liens attach to the estate and the owner’s interest in the building and land. They are registered against the title of the owner’s property at the Land Titles Office. An “owner” includes a tenant with a leasehold interest in the land.

The value of the Mechanics Lien is limited to the value of the unpaid work, materials, machinery, or 30 days of wages. Subcontractors may register Mechanics Liens against the owner’s property when they have not been paid by the general contractor or another subcontractor.

Mechanics Liens must be registered within 45 days after the last day that the work/labour was performed or the materials/machinery were supplied, or 45 days after the contract was terminated or abandoned.

While the Mechanics Lien is in place, the owner cannot remove property or machinery from the property if it would prejudice the lienholder’s claim.

Mechanics Liens expire 45 days after being registered, unless the lienholder commences court proceedings to realize the claim of lien and a certificate of proceedings is registered with the Land Titles Office.

If the funds are paid to the lienholder or the court to satisfy the debt, then the Mechanics Lien may be cancelled. If the court orders the land or machinery to be sold, then the proceeds from the sale would be distributed among all creditors with claims registered against the lands, in order of priority.

Miners Liens

Miners Liens are similar to Mechanics Liens in some respects, but different in others. The key difference is that Miners Liens attach to the production from a mine, meaning that the value of the ore produced and sold forms part of the security.

Miners Liens are also available to contractors, subcontractors, and labourers who have not been paid by an owner or contractor for work done, materials supplied, or labour performed. The work or materials must be connected to the operation of a mine.

Miners Liens cast a wider net than Mechanics Lien. Not only does a Miners Lien attach to the owner’s interest in the land and the mine, it also attaches to the owner’s interest the minerals or ores produce from the mine, as well as the chattels, equipment, and machinery used in connection with the mine or land. 

Another difference is that the underlying title for mining properties is usually held by the Crown, with the owner holding a leasehold interest in the surface and subsurface minerals. For that reason, leases for mines are registered with the NWT Mining Recorder rather than the Land Titles Office. Miner Liens can be registered against the owner’s mining leases through the Mining Recorder.  

Miners Liens must be registered within 6 months after the last day that the work/labour was performed or the materials were supplied. After the lien is filed, the lienholder has 90 days to both commence a court action to realize on their claim and register a lis pendens with the Mining Recorder.

Choosing Between Miners Liens and Mechanics Liens

Mechanics Liens are appropriate for claims involving commercial or residential properties that are registered with the Land Titles Office. Most claims will use Mechanics Liens.

Miners Liens are appropriate when the owner is operating an oil sands mine or a traditional mine.

Selecting the right type of lien is critical due to the significant differences in filing deadlines and the expiration dates.

CONCLUSION

Registering liens can sometimes be a complicated process, as there are specific restrictions, deadlines and procedural requirements. For that reason, we recommend consulting legal counsel to ensure that lien rights are properly protected. 

For more information on registering liens in both Alberta and the Northwest Territories, please contact a member of our Construction Team.