June 15 2021 |

Bill 37 and the new Prompt Payment and Construction Lien Act

Bill 37 was passed in late 2020 and is expected to come into force in Alberta sometime after July 1, 2021. Bill 37 will drastically amend key aspects of the Builders Lien Act, which will be renamed the Prompt Payment and Construction Lien Act (the “PPCLA”).

The changes will apply to all contracts entered into after the PPCLA comes into force this summer. Any contracts entered into before then will continue to be governed by the current Builders’ Lien Act.

Certain aspects of the PPCLA have yet to be announced, and we hope to have a complete picture in the coming months once the regulations under the PPCLA are announced.

Below is a summary of some of the key changes.

The Lien Period

The current Builders’ Lien Act requires most liens to be filed within 45 days from the date that work was last done or materials were last provided. The new PPCLA extends that lien period to 60 days.

The PPCLA also carves out an extended lien period of 90 days for contracts “primarily related to the supply of work and services in relation to concrete”. The lien period for improvements to an oil and gas well similarly remains at 90 days.

The Statutory Holdback

Due to the extensions in the lien period, the PPCLA requires that the statutory 10% holdback must now be retained for 60 days, or 90 days for concrete contracts or improvements to an oil and gas well.

The PPCLA also addresses holdbacks for large, multi-year projects. For projects over a certain prescribed amount, where the completion schedule is longer than one year, the owner must release part of the holdback on an annual basis, provided that no liens have been filed as of the payment date.

Prompt Payment: Invoicing and Billing Practices

Perhaps the largest change with the incoming PPCLA is the implementation of a Prompt Payment system similar to those in place in other provinces. The Prompt Payment system works as follows:

  • General contractors will be required to issue a “proper invoice” to the owner every 31 days.
  • Once a proper invoice is issued, the owner has 28 days to pay the general contractor.
  • Once the general contractor receives payment from the owner, the contractor then has 7 days to pay its subcontractors.

The PPCLA contains a detailed description of the requirements for an invoice to constitute a “proper invoice”. The PPCLA also allows the parties to add into their contract additional requirements that must be met for an invoice to qualify as a “proper invoice”. Contractual requirements for a “proper invoice” are subject to certain limitations. For example, the PPCLA specifically states that any term in a contract which makes giving a proper invoice conditional on certification or approval of an owner or consultant is of no force and effect.

The PPCLA also introduced some rules regarding when and how a contractor may withhold payment to its subcontractors when the contractor itself has not been paid in full by the owner. The PPCLA implements the following scheme to address non-payment by an owner:

  • If an owner disputes a proper invoice, the owner may refuse to pay some or all of the disputed invoice if the owner gives the general contractor a “notice of dispute” within 14 days of receiving the proper invoice. The notice of dispute must specify the amount that is not being paid and give detailed reasons for non-payment.
  • If the payment received by the general contractor from the owner is only for a portion of the amount payable under a proper invoice, the general contractor must pay each subcontractor the amount paid by the owner for the work done or materials furnished that were included in the proper invoice within 7 days of receiving the partial payment.
    • Partial payments in this scenario are to be made to all subcontractors on a proportionate basis.
    • If the disputed amount relates specifically to work done by a particular subcontractor, then the general contractor shall notify that subcontractor and withhold payment from that subcontractor while paying the other subcontractors in full.
  • If the general contractor receives a notice of dispute from the owner, it must advise its subcontractors of the notice without delay.
  • If the owner withholds payment, the general contractor must still pay its subcontractors for the work that was included in the proper invoice within 35 days of the date of the proper invoice, unless the general contractor provides its subcontractors with:
    • A notice of non-payment;
    • An undertaking to refer the matter to adjudication within 21 days (see below); and
    • A copy of any notice of dispute from the owner.

Similar rules and obligations apply as between contractors, subcontractors and sub-subcontractors.

The required forms for a “notice of dispute” and “notice of non-payment” are expected to be prescribed in future regulations.

Access to Information

The current Builders’ Lien Act allows a lienholder to request a copy of the contracts and statements of accounts for the relevant project. The PPCLA will expand this right, and allow a contractor or subcontractor currently working on a project to request and inspect contracts and statements of the state of accounts from an owner or contractor above them.

Adjudication

The PPCLA also implements an adjudication process which is meant to be faster and less costly than going to court. This process is still largely in development. Adjudicators will most likely be individuals with significant experience in the construction industry, and their authority will be restricted to payment disputes. The adjudication process will most likely be reserved for payment disputes in ongoing construction projects. Parties will still have the option to file a lien and to enforce a lien by commencing an action in the Court of Queen’s Bench instead of engaging the adjudication process.

What This Means for You

If you work in any aspect of the construction industry, these changes will have an impact on you.

The PPCLA is expected to come into force sometime after July 1, 2021, although the exact date is still uncertain. Once the PPCLA is proclaimed in force, all new contracts entered into will be governed by the procedures set out in the PPCLA. As noted above, certain details of the new procedures under the PPCLA have yet to be announced, and we hope to have some further updates once the regulations are announced.

We recommend having a lawyer review your standard form contracts and invoices to advise whether they meet the requirements in the PPCLA and recommend potential changes. We at Bishop & McKenzie LLP have a capable team that would be happy to assist you with this review and any possible revisions that you may require.


Graham W. Sanson
Associate
gsanson@bmllp.ca