Getting Ready for the New Prompt Payment and Construction Lien Act
The new Prompt Payment and Construction Lien Act will be introduced by the Alberta Government on August 29, 2022. Thank you to Gowling WLG for providing our members with resources on the new legislation, its impact on their organization and FAQ’s.
What is it?
The new Prompt Payment and Construction Lien Act, renaming the current Builders’ Lien Act, introduces prompt payment, changes the existing Builder’s Lien Act, and adds a fast track adjudication dispute resolution process. The purpose of the new legislation is to provide consistency and speed up payment throughout the construction industry, and provide an alternative to the Courts to resolve disputes in relation to payment under a contract or subcontract during the project.
Who does it apply to?
Anyone who is performing work, including services, or furnishing goods or materials, with respect to an improvement in land.
All construction sectors, from home building to large oil and gas projects, regardless of delivery model or method, or type of contract or arrangement.
Owners, developers and consultants, including architects and professional engineers who are registered as professionals and are providing consulting services with respect to an improvement.
Projects involving municipal, county and regional authorities, including public private partnership projects that they are involved in.
Will the prompt payment legislation guarantee that a party to a construction contract gets paid? The legislation does not guarantee payment, but mandates specific requirements with respect to the timing of both invoicing and payment, which requirements the parties cannot contract out of.
Who has to comply with the prompt payment legislation? Anyone who is performing work, providing services, or furnishing goods or materials with respect to an “improvement in land”, with some notable exceptions, must comply with the new legislation.
How quickly will I have to pay or will I receive payment under the new legislation? The legislation requires the contractor to issue a proper invoice to the owner within thirty-one days of the work or services being performed or the goods or materials being furnished. The owner must pay undisputed amounts to the contractor within twenty-eight days of receiving the proper invoice from the contractor. The contractor then has seven days from receipt of payment from the owner to pay its subcontractors, and so on down the contractual chain.
Are the time periods mandatory or can I agree in my contract to new or different time periods? The time periods are mandatory and cannot be extended by agreement, or contracted out of by the parties.
What if I am not paid the full amount, or any, of my proper invoice? If you are not paid the full amount, or any of a proper invoice, a notice must be issued by the party who is not paying all or a part of the proper invoice outlining in detail the reasons for non-payment.
Builders' Liens and Holdbacks
Is my ability to register a builders’ lien affected by the prompt payment legislation? No, your ability to register a builders’ lien is not affected.
How long is my lien period under the new legislation? The standard lien period has been extended from forty-five days to sixty days.
Is the lien period the same for everyone? No, the lien period of ninety days with respect to oil and gas well sites has been preserved, and the lien period for furnishing or work in relation to concrete has been extended to ninety days. This extended lien period does not however apply to entities that install or use ready-mix concrete
What is adjudication? Is it a mandatory dispute process? Adjudication is a dispute resolution process, whereby a certified adjudicator is appointed to determine a dispute between parties to a contract or subcontract based on facts submitted in writing by the parties within the short legislated timeframe. Typically, there will be no oral hearing. The adjudication process is mandatory if one party to the contract or subcontract issues a notice of adjudication to the other contracting party with whom it has a dispute.
Does the legislation affect contracts and subcontracts entered before the legislation takes affect? No, the existing Builders’ Lien Act will apply. The Prompt Payment and Construction Lien Act will not apply. For contracts entered into before the new legislation comes into effect, prompt payment, the extended lien period and the opportunity to adjudicate disputes will not apply, except if the duration of the contract is scheduled to remain in effect for longer than two years from August 29, 2022. After two years, the new legislation will apply to the contract, and the contract must revise its terms accordingly, allowing for a two year grandfathering period.
Should I be revising my contracts and subcontracts, and if so, what provisions should I be adjusting? Parties will need to revise their contracts and subcontracts to reflect the new requirements with respect to invoicing and payment, and the mandated adjudication process. One should ensure that their contracts and subcontracts include terms and conditions consistent with the new legislation with respect to what needs to be included in a proper invoice, the timing of invoicing and payment, how change orders are to be authorized, an applicable interest rate, where and to whom notices should be provided, and what happens if a notice of dispute or adjudication is issued.