Prompt Payment Coming Down the Pike in NS: What Owners & Contractors Must Know
February 4, 2020
By John Kulik, Partner at McInnes Cooper,
Melanie Gillis, Lawyer at McInnes Cooper
Canada’s construction industry is abuzz with the latest innovation in lien legislation. Prompt payment requirements are being added to provincial lien legislation across Canada to introduce swift payment deadlines to pay contractors. Ontario led the way, introducing prompt payment requirements in its Construction Act imposing payment deadlines all the way down the construction pyramid. Many provinces, including Nova Scotia (the only Atlantic Canadian province to date), have since followed suit. The N.S. legislature introduced Bill 119 proposing amendments to the N.S. Builders’ Lien Act to include prompt payment re on March 15, 2019. The bill passed on April 12, 2019, but will not take effect until law-makers finalize the corresponding regulations setting out the mechanics of how the new requirements will work. In its March 15, 2019 press release, the N.S. government stated it would be conducting targeted consultations with industry participants such as contractors, trade unions, and engineers in Summer 2019.
While the prompt payment requirements will be much clearer upon publication of these regulations, before then, owners and contractors can get a good sense of the changes coming down the pike. Based on the proposed Builders’ Lien Act amendments, and the experience of other provinces that have implemented prompt payment requirements, owners and contractors can plan for their 2020 construction projects with the procedures in place to take full advantage of, and ensure compliance with, the new legislation.
5 Key N.S. Prompt Payment Requirements
The proposed new prompt payment provisions will implement important new requirements that will change how N.S. owners and contractors run their day-to day businesses. Here are five of the key new requirements with which owners and contractors will need to comply when the prompt payment provisions take effect.
1. Payment Requirements
The new prompt payment provisions are mainly geared towards avoiding undue delay in payments to contractors and subcontractors throughout the construction pyramid. The provisions require owners and contractors to make prompt payment within the ‘prescribed time’ – provided they have received an invoice satisfying the definition of a proper invoice. The provisions do not define the prescribed time, but a specific time period is expected to be set out in the regulations. If Nova Scotia follows Ontario’s lead, this time period is likely to be around: four weeks following receipt of the invoice for owners paying general contractors; one week following receipt of payment from the owner for general contractors paying subcontractors; and one week following receipt of payment from the general contractor for subcontractors paying sub-subcontractors and suppliers.
2. Invoice Requirements
The new prompt payment provisions also impose new requirements for the issuance of invoices:
- Definition of ‘proper invoice’. A new definition of ‘proper invoice’ describes it as a written document containing: the contractor’s name and address; the date the invoice was prepared and the period during which the work was performed; the authority under which the work was performed; a description of the work performed; the amount payable; the payment terms; and the contact information for the individual to whom the invoice is being sent.
- Timing of issuing invoices. Invoices must be issued in accordance with the prescribed times and intervals set out in the regulations.
- Revisions to invoices. Issued invoices can be subsequently amended so long as the owner agrees in advance to the revision, the date of the proper invoice is not changed as a result of the revision, and the invoice continues to meet the definition of a ‘proper invoice’.
- No pre-approval of invoices: Parties are precluded from including contractual provisions requiring approval of draft invoices prior to issuance, although parties can still contract for approval of invoices once issued.
3. Invoice Disputes
The new provisions also contemplate the dispute of invoices:
- Notice of non-payment. A party may dispute an invoice provided the owner sends the contractor a notice of non-payment. The time for providing the notice and its form are not set out, but the regulations will likely expressly state these. In Ontario, the time for sending out a notice of non-payment is two weeks from receipt of invoice.
- Failure to send notice of non-payment. Again, the regulations will likely state this, but in Ontario the failure to send a notice of non-payment within the prescribed time precludes the owner from disputing that specific invoice.
- Not a simple ‘pay when paid’ scheme. Contractors and subcontractors are still required to pay their subs even if they receive a notice of non-payment from the owner, unless they send their own notice of non-payment to their subs that: indicates the contractor is not paying some or all the amount payable to the sub due to non-payment from the owner; provides an undertaking to refer the matter to adjudication; and provides a copy of the notice of non-payment received from the owner.
4. Partial payments with multiple subcontractors
The requirements dealing with partial payments from owners where there are a number of subcontractors are also notable. In particular, where the owner withholds an amount from a contractor in relation to the work of a specific subcontractor(s), that contractor must pay the remaining subcontractors, and any amount the contractor paid to the specific subcontractor(s) is payable to the remaining subcontractors on a proportionate basis. Where the owner’s withholding is not specific, the contractor must pay all subcontractors on a proportionate basis.
5. Non-payment disputes
The new prompt payment provisions state a party to a contract may refer a dispute over non-payment to adjudication, but they leave details around the adjudication process to be clarified in the (as yet unknown) regulations. However, Nova Scotia is likely to follow in Ontario’s footsteps and set up a similar dispute resolution framework. Under the Ontario process parties may refer their dispute to an impartial adjudicator with experience in construction. Notably, Ontario requires an adjudicator be chosen from a list approved by an authorized nominating authority (the Ontario Dispute Adjudication for Construction Contracts, or ODACC). It remains to be seen whether Nova Scotia will adopt the same approach. It also appears Nova Scotia will allow parties to construction contracts to choose their own preferred method of adjudicating disputes over non-payment, given the new provisions state parties “may”, not “shall”, refer disputes to adjudication. However, a quick and efficient method of resolving non-payment disputes with the assistance of someone with construction experience is likely to have significant uptake by those in the construction industry: as it stands, lien actions must still be perfected in Nova Scotia Supreme Court even where the lien does not exceed the Small Claims Court monetary cap of $25,000.
3 Planning Tools for Owners & Contractors
These amendments to the N.S. Builders’ Lien Act and the corresponding regulations will significantly impact both N.S. owners and contractors. The Ontario legislation has clear transition rules stating that any procurement processes or contracts entered into before prompt payment legislation took effect are not subject to the requirements. However, the proposed N.S. legislation has no such wording, though it does state the regulations may exempt certain construction contracts or classes of construction contracts from the new requirements. Owners and contractors can begin planning now for the possibility the new requirements will apply to any existing contracts as well as all contracts entered into after they take effect. Here are three tools to help owners and contractors plan for their 2020 construction projects with the procedures in place to take full advantage of, and ensure compliance with, the new legislation.
1. Standard form invoices
One of the most important takeaways for contractors is to ensure their standard invoice forms include all the information required to meet the definition of ‘proper invoice’. This is essential in order to be able to take advantage of the new prompt payment provisions. It will also be important to ensure that invoices are issued at the times and intervals prescribed by the regulations.
One of the most important takeaways for owners is to ensure that they keep meticulous records of the dates upon which all issued invoices are received so as not to miss an opportunity to dispute an invoice by failing to send the notice of non-payment in time. Having one individual appointed to receive all invoices would assist in this process, as would having a records system set up that would automatically input the deadlines for sending notice of non-payment alongside the invoice date.
3. Consultant certification
Another important consideration for owners and consultants is that, where construction projects involve certification of payments by a consultant, that consultant must be prepared to review invoices and certify payments with enough time for the owner to send notice of non-payment if necessary.
Please contact your McInnes Cooper lawyer or any member of our Construction Law Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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