Amendments to the Builders' Lien (Prompt Payment) Amendment Act

The following is an update to our November 2020 bulletin which outlined the changes proposed in the then-current version of the Builders' Lien (Prompt Payment) Amendment Act, 2020 (Bill 37).

AMENDMENT A1

On November 4, 2020, the Government of Alberta proposed an amendment (Amendment A1) to Bill 37. Amendment A1 was passed and incorporated into Bill 37, which received royal assent on December 9, 2020. Bill 37 is expected to come into force on proclamation, which is anticipated to occur in July 2021.

The revisions to Bill 37 in Amendment A1 included:

1. Mandatory Phased Payments of Holdback Amounts: Bill 37 provided for the optional payment of holdback amounts by owners for lengthy and monetarily significant contracts that meet the statutory requirements. Those requirements are that:

1. the contract has a completion schedule of longer than one year or provides for the phased payment of holdback amounts;

2.  the contract has a contract price that exceeds the amount provided for in the regulations;

3. there are no liens on title as of the date of payment; and

4. any other conditions included in the regulations are met.

Amendment A1 changed this, making phased payments of holdback amounts mandatory for these contracts. This amendment should help ensure quicker payment for contractors and subcontractors, and replace the ad hoc approach taken to date by parties to address the lengthy delay in the payment of holdback funds.

2. Removal of the Prohibition Against "Pay When Paid" Clauses: Originally, Bill 37 prohibited "pay when paid" clauses, which allow contractors to withhold payment to their subcontractors until the contractor receives payment from the owner. Amendment A1 removes this prohibition. The effect of this change, however, is unclear. Although this suggests that “pay when paid” clauses will still be permitted in construction contacts in Alberta, these clauses arguably run counter to the prompt payment clauses otherwise provided for in the legislation.

3. Amendments to Part 3, Prompt Payment: Amendment A1 amended the prompt payment provision in Bill 37 with an expanded regime that, among other things:

1. introduced a requirement to provide “proper invoices” every 31 days; and

2. added deadlines for payment and notification requirements and deadlines regarding payment disputes to other parties beyond the owner and contractor in the chain of contracting. This includes a deadline for any contractor or subcontractor in the chain of contracting to pay its immediate subcontractors within seven days after receiving payment on a proper invoice from the party immediately above it in the chain of contracting. All contractors and subcontractors should begin taking organizational steps now to ensure that they can issue invoices and dispute or make payments within these brief, mandatory timeframes.

THE RED TAPE REDUCTION AND IMPLEMENTATION ACT

On April 8, 2021, the Red Tape Reduction and Implementation Act (Bill 62) passed first reading in the Alberta Legislature. Second reading began on April 20, 2021. If passed into law, Bill 62 will further amend the Builders' Lien (Prompt Payment) Amendment Act. The proposed amendments include:

1. The extension of Bill 37 to classes of professionals acting in a consultative capacity on construction projects as set out in the regulations. Depending on the terms of the regulations, this could expand the new legislation to professionals like architects or engineers who did not clearly fall within the terms of the Builders’ Lien Act.

2. Clarification and confirmation that Bill 37 will not apply to construction projects with the Government of Alberta, including projects that are “public works” as defined in the Public Works Act, RSA 2000, c P-46 and projects to which the provincial Crown or a provincial corporation that is an agent of the Crown is a party. This is consistent with the application of the existing Builders’ Lien Act.

3. Clarifications and additions to the adjudication process proposed by Bill 37, including:

   1. Clarification that a matter may only proceed to adjudication if (i) a party has not already commenced an action in court with respect to a dispute and (ii) the contract or subcontract is not yet completed.

   2. Further exceptions to the final and binding nature of an adjudicator’s decision to include: (i) a court order made in respect of the matter, (ii) judicial review of the decision, (iii) an agreement between the parties to proceed to arbitration and (iv) an agreement between the parties to resolve the dispute.

   3. Confirmation that an adjudicator’s decision can be registered as a decision of the Court of Queen’s Bench and shall have the same force and effect once registered.

The impact of the new proposed adjudication method remains unclear because it is still subject to significant definition and clarification. Any stakeholders who do not want to participate, however, should act now by including dispute resolution provisions in their contracts.

These recent amendments and clarifications, including mandatory phased holdback payments, the extension of invoicing, payment and dispute requirements down the chain of contracting, and the further definition of the adjudication process, highlight the ongoing changes to the proposed legislation. Potential further amendments, as well as regulations, are expected to add additional detail and definition to this significant overhaul of Alberta’s construction legislation. All stakeholders should keep a close eye on the legislation so that they can prepare accordingly for when the legislation comes into force.

For further information, please contact:

David Tupper    403-260-9722
Richard Bell      403-260-9656     
Tom Wagner     403-260-9734
 
or any other member of our Litigation & Dispute Resolution or Construction Dispute Resolution groups.