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.
