February 4, 2020
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:
3. Invoice Disputes
The new provisions also contemplate the dispute of invoices:
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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