Image: hawfeed/123RF
The Canadian construction and infrastructure sector is currently experiencing major changes due to the introduction of new prompt payment legislation in jurisdictions across Canada. Brought on by industry complaints due to the lack of timely payment requirements and formal adjudication requirements, prompt payment and adjudication legislation is in the process of being implemented, or is already in effect, in a number of Canadian provinces and federally. These changes have had, and will have, a significant effect on Canada’s construction and infrastructure sector. How will these changes impact alternative financed procurement projects and projects procured under a private-public-partnership model (collectively, AFP projects) for infrastructure delivery?
Before addressing that specific question, below is a high-level overview of passed and proposed prompt payment legislation in its current state across Canada.
Summary of prompt payment and adjudication legislation across Canada
Ontario is the only common law jurisdiction where prompt payment legislation is currently in force. Quebec’s prompt payment legislation is in force, and it only applies to 180 public works projects that are specified in the Quebec legislation. (Summary of common law jurisdiction legislation on pages 52 and 53.)
How will prompt payment and adjudication legislation apply to AFP projects?
The effect of prompt payment and adjudication legislation on AFP projects will be largely dependent on the jurisdictional legislative requirements. While there are certain similarities across Canada, each jurisdiction has its own specific exemptions, requirements and carve-outs. That being said, there are certain requirements in the Ontario Construction Act and in the current version of the Alberta Prompt Payment and Construction Lien Act applicable to AFP projects that are unique compared to projects that do not use AFP delivery models.
Ontario Construction Act
The Ontario Construction Act applies to all projects procured by the Crown, municipalities or broader public sector organizations in Ontario, subject to limited exceptions. These public sector organizations include, but are not limited to: boards, commissions, committees, authorities and organizations that received public funding in the prior fiscal year or are controlled by the Government of Ontario, public utilities, railways, hospitals, post-secondary institutions, and municipalities and local municipal boards. AFP projects involving these public entities, where the public entity is the owner of the premises where the improvement is being undertaken and the private sector partner (or special purpose entity) finances and undertakes the improvement on the public sector entity’s behalf, are subject to certain unique requirements. These requirements are provided in Section 1.1 of the Ontario Construction Act.
First, the prompt payment requirements in Part I of the Ontario Construction Act are not applicable to any portion of a project agreement pertaining to the operation or maintenance of an improvement involving a special purpose entity. This is likely due to the nature of operation and maintenance phases of the AFP model, as at this point in time, the project is already constructed and the special purpose entity is simply operating and maintaining the asset.
Second, there are certain modifications to the adjudication requirements. Specifically, the following matters are not the subject of adjudication under Part II of the Ontario Construction Act:
- Determinations of substantial completion or substantial performance; and
- A determination of whether a milestone in relation to the improvement has been reached (if reaching the milestone requires an amount to be paid).
Third, the special purpose entity that enters into the AFP form of agreement (i.e. a design-build-finance-operate-maintain project agreement) with the government entity is deemed to be the owner in place of the Crown, municipality or broader public sector organization for the purposes of certain sections of the Ontario Construction Act. Notably, those specific sections govern the determination and rules for substantial performance, expiry of liens and the right to information specific to lien matters, which are specific to the contracts entered into by the “concessionaire” rather than applicable to the public sector owner.
Thus, the prompt payment requirements within the Ontario Construction Act will not limit the governmental authority’s ability to have the private sector finance the project as the main requirements will apply directly to the contract between the concessionaire and the design builder.
These exemptions do not apply to AFP projects undertaken by a private sector owner.
The effect of prompt payment and adjudication legislation on AFP projects will be largely dependent on the jurisdictional legislative requirements.
Alberta Prompt Payment and Construction Lien Act
Alberta also has some unique requirements and exemptions for AFP projects.
The Alberta Prompt Payment and Construction Lien Act will not apply to: 1) public works as defined in the Public Works Act (Alberta) (consistent with the original Builders’ Lien Act), which are defined as any construction undertaking and all the works and property acquired for that undertaking pursuant to a contract entered into with the Crown; and 2) agreements to finance and undertake an improvement in which the Crown or a provincial corporation is a party. The legislation also includes language to further exempt parties, agreements and undertakings that will be specified in the regulations, which have not been developed at this time. The authors interpret these exemptions to mean that any type of contract involving the Crown will not be subject to the Alberta Prompt Payment and Construction Lien Act. Thus, under the current drafting of the Alberta Prompt Payment and Construction Lien Act, AFP projects involving the Crown or provincial corporations look like they will be excluded from the legislation. Notably, Alberta Infrastructure falls under the definition of the Crown, meaning that projects being procured by Alberta Infrastructure would not be governed by the Alberta Prompt Payment and Construction Lien Act requirements. These exemptions also differ from the Ontario Construction Act, as it appears that the prompt payment requirements will not apply to contracts between the concessionaire and the design builder, if the project is being procured by the Crown.
While these exemptions exist, the Government of Alberta has stated that it intends to “continue to hold itself to the standards of prompt payment that are proposed in the new legislation.” It is not clear whether this means that contracts involving the Government of Alberta will include prompt payment requirements, but regardless, this will have a material impact on AFP projects.
While the Crown may be exempt from the Alberta Prompt Payment and Construction Lien Act, it appears that the legislation may apply to AFP projects with municipalities and post-secondary institutions, though discussions on how the legislation would apply are still ongoing1. Under the current draft of the Alberta Prompt Payment and Construction Lien Act, projects involving municipalities would not be expressly excluded, depending on the context.
Since the legislation has not yet passed and there is no real visibility on the regulations, industry will have to take a wait-and-see approach to assess the impact of prompt payment requirements on AFP projects in Alberta.
How will prompt payment legislation affect the piling industry on AFP projects?
While each common law province will have variations in their legislation, prompt payment requirements will inevitably impact the piling industry as with any subcontractor on an AFP project.
Piling contractors should be mindful of the specific jurisdictional differences for AFP projects, including the modifications in Ontario and the exemptions in Alberta, and should be aware of the payment timelines and dispute timelines under the prompt payment legislation. Thankfully, most of the payment provisions in the prompt payment legislation currently appear to be consistent across the country, which should simplify administration for subcontractors doing work in multiple jurisdictions in Canada.
Once contractors have received payment from the owner (28 days after the receipt of a proper invoice), contractors will then have seven days to pay their subcontractors. Subcontractors will then have seven days from receipt of payment to pay their subcontractors, or seven days from the notice of non-payment from the contractor to dispute the payment.
Once contractors have received payment from the owner (28 days after the receipt of a proper invoice), contractors will then have seven days to pay their subcontractors.
Further, there are certain jurisdictional changes to lien mechanics. Under the Ontario Construction Act, builders’ liens can now be preserved within 60 days and perfected within 90 days of either the certificate or declaration or substantial completion, or the last day materials or services were provided to the project by the contractor, an increase in both instances from 45 days. The Alberta Prompt Payment and Construction Lien Act also has created specific changes to lien mechanics, increasing the time to register a lien against the project from 45 days from the last day the materials were furnished for the project to 60 days. However, the Alberta Prompt Payment and Construction Lien Act has also created a specific carve-out for concrete, extending the time to file a lien against the project to 90 days, but the context of the concrete carve-out is not clear at this point.
Alberta also has some unique requirements and exemptions for AFP projects.
Conclusion
While prompt payment legislation is applied with certain modifications in Ontario, it will be applicable to subcontractors on AFP projects and piling contractors will be afforded prompt payment protections. The applicability of prompt payment legislation on AFP projects in Alberta is less clear. Subcontractors working on AFP projects with the Government of Alberta will likely not benefit from prompt payment protections unless the Government of Alberta provides prompt payment terms in the contract. Therefore, piling contractors in Alberta may or may not benefit from prompt payment legislation in Alberta, depending on the owner of the project. 
Geoff Stenger is a partner at Bennett Jones LLP. His practice is primarily focused on project development, long-term service agreements, energy, infrastructure and construction law. Jason Roth is a partner and head of the firm’s construction law practice group and capital projects industry team. He practises law related to infrastructure development projects. Parker Mckibbon is an associate at Bennett Jones LLP and has a corporate commercial law practice with a focus on project development, infrastructure and energy law. Evan Hall is a student at law at Bennett Jones LLP. All are based in the firm’s Calgary office and act on various projects across Canada.
- Alberta, Legislative Assembly, Hansard, 30-2, (1 June 2021) at 5111; Alberta, Legislative Assembly, Hansard, 30-2 (2 June 2021) at 5126.
-
Chance University
July 26, 2024 -
The Future Begins with “P”
July 24, 2024 -
Leading Edge Custom Machining Solutions
July 24, 2024 -
Upgrades to the Trans-Canada Highway from Ford Road to Tappen Valley Road
July 24, 2024 -
Your Machines Deserve Peak Performance
July 23, 2024