On May 31, 2017, the Construction Lien Amendment Act, 2017, was introduced in the Ontario legislature. The proposal includes provisions for a mandatory prompt payment regime and mandatory fast-track dispute resolution. These amendments are a welcome modernization of the Ontario Construction Lien Act (CLA) and it is hoped that similar reforms will make their way into the various construction and builders lien statutes currently in place in all provinces in Canada.
The British Columbia Law Institute has been undertaking a builders lien reform project to review our Builders Lien Act (BLA), as it has not been comprehensively amended since 1997, despite significant evolution in the construction industry. Although BCLI had intended to produce a report for the Ministry of Justice and the Attorney General with recommendations for reform by mid-2016, the report has not yet been published, and we do not have any current information on when it will be published. The expert volunteer project committee tasked with assisting BCLI to prepare the report has indicated that the proposed revisions to the BLA will include provisions relating to claims of lien against holdback funds (also known as Shimco Lien Claims), dealing with holdback accounts, and making lien proceedings more practical and beneficial to lien claimants. It is hoped that the new or amended BLA will also include prompt payment provisions similar to those introduced in Ontario.
Reform in relation to federal undertakings is also under way. On April 13, 2016, the Canadian Senate passed the first reading of Senate Bill S-224, an act respecting payments made under construction contracts, to be known as the Canada Prompt Payment Act (PPA). The Bill was put on the order paper for a second reading on April 19, 2016, and the Senate is currently conducting hearings in front of the Standing Senate Committee with respect to the Bill. The purpose of the PPA is to provide for timely payment to contractors under construction contracts with the federal government and government institutions and to subcontractors under related subcontracts. If passed, the PPA would apply to all contracts, and parties would not have any ability to contract out of or waive any of the rights, obligations or remedies provided for under the PPA. The PPA would require the government institution undertaking the project to make progress payments to a contractor, and a contractor to its subcontractors, on a monthly basis, or at shorter intervals as provided in the contract. The contractor or subcontractor would be entitled to provide a written notice of default to the government institution, and, in the case of a subcontractor, to the contractor, with a copy to the government institution. If payment remained outstanding for 7 days after receipt of the notice of default, the contractor or subcontractor would be entitled to suspend performance of the work or terminate the contract or subcontract (if the written notice of default included a notice of termination).
The demand and need for prompt payment rules is also being considered in Quebec. In April, 2016, Quebec’s finance minister suggested that the province would be introducing new prompt payment rules by the spring of 2017, which would apply to public sector projects. We have not seen these promised prompt payment rules yet in Quebec. The initial drive for prompt payment rules stemmed from a recommendation from the Charbonneau Commission, investigating corruption in the construction industry. The Commission identified four reasons why there appeared to be a lack of prompt payment in the construction industry:
- site supervisors often have to approve progress payments, giving them power to intimidate contractors;
- competition is restricted because contractors, especially smaller ones without the cash flow to pay their employees and suppliers while waiting for payment, will be reluctant to bid on projects if they know payment is going to be slow;
- as a result of delays in payment, contractors end up seeking funding from non-traditional sources, which brings organized crime into construction projects; and
- contractors include higher borrowing costs in their bids and this ultimately drives up the cost of public projects.
In Alberta, commencing in April of 2016, the Ministry of Infrastructure began including prompt payment clauses in its contracts with contractors. The Alberta Construction Association has been lobbying the province to extend these sorts of prompt payment clauses to other public entities such as school boards and municipalities.
It is clear from the proposed reforms being considered across Canada that there is a recognition of the difficulties and disadvantages often faced by contractors and subcontractors when embarking on construction projects. Owners, lenders and general contractors need to be prepared for the commercial implications of the proposed reforms. It is expected that most provinces will wait to see how Ontario’s amended CLA unfolds prior to proceeding with any significant reforms to their own provincial builders lien legislation. In any case, it is clear that there is a recognition in BC that revisions are needed to our builders lien legislation and it will only be a matter of time before the proposed reforms are implemented.