New prompt payment legislation for the construction industry came into force on August 29, 2022. This changes how the industry operates by regulating invoicing and payments, and speeding up the dispute and adjudication process.
What is the Prompt Payment and Construction Lien Act?
Prior to August 29, 2022, prompt payment laws for the construction industry were compiled in the Builders’ Lien Amendment Act. These laws did not include payment timelines in the industry. The new Prompt Payment and Construction Lien Act (PPCLA) introduces some major changes, including strict payment deadlines and a new adjudication system to fast-track dispute resolution.
The purpose of the new Act is to “help ensure contractors and subcontractors get paid on time”, and to “strengthen Alberta’s economic recovery and protect jobs”.
Additionally, the Government of Alberta introduced the Prompt Payment and Adjudication Regulation which prescribes a new adjudication regime under the PPCLA, and the Builders’ Lien Forms Amendment Regulation which prescribes various forms of notices referenced in the PPCLA.
How Alberta’s New Prompt Payment Legislation Works
Under the PPCLA, this is the new legal process for payment in the construction industry:
- A contractor must provide an invoice to the owner every 31 days.
- Upon receipt of a proper invoice, the owner has 14 days to object.
- If there is no objection, the owner has 28 days to pay.
- Once the contractor receives payment, they must pay subcontractors within 7 days.
Let’s clarify a couple of terms used in the PPCLA.
“Prompt payment” refers to specific timelines prescribed by the PPCLA, as follows:
By an owner to a contractor—28 days after receipt of the proper invoice
By a contractor to a subcontractor—7 days after receiving payment from the owner
A “proper invoice” is a written request from the contractor for payment from the owner that includes:
- The contractor’s name and business address
- The invoice date and the period during which the work was done or materials were furnished
- Reference to the contract under which the work was done or materials were furnished
- A description of the work done and materials furnished
- The amount requested for payment
- A breakdown of the payment terms
- The name, title and contact information of the person to whom the payment is to be sent
- A statement that the invoice is intended to be a proper invoice
- Any other requirements as specified in the contract
How Are Invoice Disputes Resolved Under The PPCLA?
If an owner objects to an invoice—either to the validity of the invoice or to the payment application—they have 14 days to dispute it. The dispute must be in the form prescribed in the regulations, and must specify if the owner is disputing all or only a portion of the invoice. It must detail the reasons for non-payment.
If the owner is only disputing a portion of the invoice, the undisputed portion must be paid within 28 days of receiving the proper invoice.
If a contractor disputes a subcontractor’s entitlement to payment, the contractor must provide the subcontractor a notice of non-payment that details the amount not being paid and the reasons for non-payment. The notice of non-payment must be given to the subcontractor:
- within 7 days of receiving the notice of dispute from the owner, or
- within 35 days of giving a proper invoice to the owner if the owner didn’t give a notice of dispute.
When a contractor sends a notice of non-payment to a subcontractor because of non-payment by the owner, the contractor must begin the process of adjudication within 21 days of giving the notice.
Adjudication is a streamlined process of dispute resolution outside of court. The PPCLA intends to facilitate the speedy resolution of disputes. The goal is to resolve all disputes within 60 days (excluding Saturdays and statutory holidays) from the date of commencement.
An adjudicator is appointed by a Nominating Authority to preside over the adjudication. When someone wants to initiate adjudication, they must provide notice to the other party and the Nominating Authority on the same day. This process is not available after the completion of a contract unless all parties agree to it.
The types of dispute adjudication can resolve include:
- Valuation of services or materials
- Change orders
- Lien fund amounts owed at the end of a contract
- Any other matters the parties agree to adjudicate
An adjudicator has the authority to order payment within a specified time period and to allow unpaid parties to cease contracted work until they receive payment.
The adjudication timeline is as follows:
- Once the notice of adjudication is delivered, parties have 4 days to agree on an adjudicator.
- Once the parties agree to an adjudicator, or if the 4-day period expires without an adjudicator agreement, the Nominating Authority has 7 days to appoint the adjudicator.
- Once the adjudicator is appointed, the initiating party has 5 days to provide a notice of adjudication, a copy of the contract, and a copy of all other documents to the adjudicator and the other party.
- Upon receipt of the notice of adjudication, the responding party has 12 days to provide a response to the adjudicator and the other party.
- The adjudicator must issue a decision within 30 days of receiving all the documents from the initiating party.
The adjudicator may require the responding party to respond earlier than the prescribed 12 days, and may also extend any deadline in the process by up to 10 calendar days, as necessary.
Does the Prompt Payment and Construction Lien Act affect me?
The PPCLA applies to all construction contracts and subcontracts entered into on or after August 29, 2022. It also applies to regulated professional engineers and regulated professional architects who act in a consultant capacity.
This new legislation does not affect obligations of a contractor to pay employees, nor does it apply to “public works” as defined by 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.
Questions About The PPCLA?
There are more details about the new legislation we didn’t cover in this post, including details about concrete lien periods, progressive holdback release, and interest rates. As is often the case with new legislation, there are exceptions to some rules, and the application of these laws can vary.
To ensure you are in line with the new PPCLA, it’s important to review your contracts and invoices, accounting protocols, and dispute and adjudication procedures.
If you still have questions about the Prompt Payment and Construction Lien Act, the team at Getz Collins and Associates is happy to walk you through the changes and how they affect your specific situation. Contact us today.