Prompt Payment Legislation in Alberta: Changes and Clarifications

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[co-author: Patrick Schembri - Articling Student]

On October 26, 2020, we provided an overview of the key features of Bill 37, Builders' Lien (Prompt Payment) Amendment Act, 2020, which is intended to amend the Alberta Builders' Lien Act (BLA) and become the Prompt Payment and Construction Lien Act. On October 28, 2020, Bill 37 passed its second reading in the Legislature of Alberta and on November 4, 2020, an amendment to Bill 37 titled Amendment A1 was carried. This amendment made substantial modifications to Bill 37 including:

  1. Timeline: The Alberta government has stated the current projected timeline would have the authorized nominating authorities appointed in April 2021, for these authorities to appoint adjudicators in May 2021, and for Bill 37 to come into force in July 2021.
  2. Prompt Payment: The prompt payment obligations under Bill 37 are now substantially similar to those in Ontario's Construction Act, although there are important differences. The basic pillars of the system in Bill 37 are as follows:
    • Proper invoices must be given to the owner by the contractor at least every 31 days unless the contract contains provisions requiring testing and commissioning that are not fulfilled;
    • On receipt of a proper invoice, the owner has 14 days to object to payment through a notice of dispute and 28 days to pay any amount in the proper invoice that is not identified in the notice;
    • On receipt of full payment from the owner, the contractor must, within 7 days, pay each of its subcontractors the amount payable for their work that was included in the proper invoice, or provide them with a notice of non-payment;
    • On receipt of partial payment from the owner, the contractor must, within 7 days, pay each of its subcontractors for their work that was included in the proper invoice on a proportionate basis or provide them with a notice of non-payment;
    • On receipt of a notice of dispute from the owner, the contractor must advise its subcontractors of the notice without delay;
    • In the event of non-payment by the owner, the contractor must pay its subcontractors for their work that was included in the proper invoice within 35 days of the date of the proper invoice, unless it provides the subcontractors with:
      1. a notice of non-payment;
      2. an undertaking to refer the matter to adjudication within 21 days; and
      3. a copy of any notice of dispute from the owner;
      Similar obligations apply as between subcontractors.
  3. Pay-When-Paid Clauses: The express prohibition on the controversial pay-when-paid clauses has been removed from Bill 37.
  4. Adjudication: In its current form, adjudication determinations under Bill 37 will be final and binding decisions, unlike the interim binding decisions under Ontario's system. This may have significant implications for the ability of parties in the construction industry to settle certain disputes through litigation or arbitration once a matter has been determined by an adjudicator.
  5. Holdback Release: The provisions in Bill 37 allowing the owner to release the holdback on a phased or annual basis have been changed to mandatory obligations requiring the owner to do so if such obligations are set out in the contract and the relevant statutory conditions are met.

Subject to future amendments, the foundation of prompt payment and adjudication in Alberta has been set although many important details have been left to the regulations and are still being developed.

Once proclaimed, Bill 37 will have a significant effect on the construction industry in Alberta. We recommend that industry participants keep themselves updated on ongoing developments, and take proactive planning measures to prepare themselves for these effects.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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