More than 30 BC construction associations, SMACNA-BC among them, sign letter of support for prompt payment legislation
Edited by Jessica Kirby with notes from Daniel Thompson and Ian Breneman | Alexander Holburn + BC Construction Association
Payment terms for construction projects are changing across Canada, say Daniel Thompson and Ian Breneman, lawyers with Alexander Holburn law firm. “Prompt payment legislation (PPL) includes mandatory payment terms intended to increase the cash flow of contractors and subcontractors,” say the authors in an article titled, “Prompt Payment Update”.
According to the BC Construction Association, which is leading the charge on PPL in BC, lack of prompt payment is one of the most significant issues in the construction sector.
“When contractors don’t get paid on time, it places a financial burden on small businesses and blocks cash flow in the economy,” the BCCA says. “The estimated cost in BC’s construction sector is $4 billion, mostly due to risk premiums, interest charges, and legal fees. This doesn’t include the cost of shuttered business and other losses.”
Ontario Leads the Way
Federally, the Federal Prompt Payment for Construction Work Act received Royal Assent in June 2019 and the Government of Canada published draft prompt payment regulations in February 2023.
As for provincial legislation, PPL is in force in Ontario, Saskatchewan, and Alberta. Royal Assent has also been given to PPL in Manitoba, Nova Scotia, and New Brunswick.
Ontario was the first province to enact the legislation. It did so in October 2019 through an amendment to the Construction Act that is intended to ensure that contractors’ and subcontractors’ invoices get paid in a timely manner. The amended Construction Act includes:
- Invoice requirements: a “proper invoice” is defined in the Construction Act as a written bill or other request for payment that includes specific details.
- Payment timelines: unless the invoice is disputed within 14 days, the owner is required to pay the contractor within 28 days of receiving the invoice. The payment timeline cascades—the contractor must then pay its subcontractors within 7 days after receiving payment, and subcontractors must pay their sub-subcontractors within 7 days of receiving payment.
- Penalties: if payment deadlines are not met, interest begins to accrue when payment is due at the rate specified in the contract or at a statutory rate if no rate is specified.
- Dispute resolution: disputes are adjudicated by the Ontario Dispute Adjudication for Construction Contracts. The adjudicator may issue directions for the adjudication, conduct on-site inspections, obtain expert reports, and determine the adjudication. The determination is binding unless it is overruled by the court, arbitration, or written agreement between the parties.
The other provinces where PPL is in force or soon will be have similar rules and stipulations built into various acts and regulations, with slight differences in payment deadlines, exclusions, and dispute resolution terms and processes.
British Columbia Still Debating
British Colubia, however, does not currently have prompt payment legislation. An amendment to the Builders Lien Act contemplated the introduction of prompt payment in 2019, but the bill (M 223) did not pass the first reading. It included provisions similar to those in force in Ontario including invoice specifications, payment timelines (28 days for contractors and an additional 7 to subcontractors) as well as the contractor’s ability to dispute a subcontractor’s invoice.
Pressure against PPL comes from some industry associations and advocates who say PPL would mean more red tape for the construction industry—red tape smaller companies simply can’t afford. The Canadian Homebuilders’ Association of British Columbia (CHABC) is just one group that says payment terms and contractors should be based on the size and complexity of the project, noting that PPL would require the same payment terms and complexity for single home renovation and a new government-owned bridge.
“Small, owner-managed businesses cannot afford to use lawyers or significantly increase their administration load in the same way that large, sophisticated organizations could,” the association said in a statement. “The average home builder in BC builds less than five homes a year.”
CHABC says that a BC industry with both lien and prompt payment legislations would increase costs for everyone, including “internal staff for adjudication processes, fees for experts and external counsel, and adjudicator fees.”
Redundancy and confusion if a company receives both a lien notice holdback and adjudication determination; disruption to monthly payment and invoicing schedules; and drawn-out project timelines are all additional concerns the CHABC says the industry can’t afford.
Essential to the Construction Industry
But BCCA says solving the prompt payment challenge in BC will release millions of dollars into the economy and improve cash flow for everyday British Columbians across the province. In particular, it will help small contractors to pay their staff and their bills and manage their businesses without taking on extra debt and financial expenses. “When contractors can’t rely on payments, they can’t invest in training or innovation,” says the BCCA.
The association is working with industry stakeholders to urge the provincial government to introduce legislation immediately. In September, members of a task force assembled by the BC government sent a letter to Attorney General Sharma, outlining the economic case for PPL. BCCA, Electrical Contractors’ Association of BC, and Mechanical Contractors of BC—all task force members—signed the letter along with 30 industry partners—including SMACNA-BC. They stated the dire need for PPL, lien reform, and adjudication in order to maintain BC’s economic health.
“Without these, one of BC’s largest and most essential industries struggles in the face of this province’s ongoing and urgent need for more housing and infrastructure development,” said the letter. “The signatories of today’s letter come together both in welcoming your government’s intention to examine Prompt Payment Legislation for British Columbia, and in supporting its rapid enactment.”
Outlining 90- to 120-day delays in payment, the letter describes the unfairness of employers financing their clients by covering salaries and suppliers from their own reserves. “About 90% of BC contractors are small companies,” it says. “These are not multinational conglomerates with deep pockets. Help them stay in business to build the infrastructure British Columbia needs. Help them retain skilled workers in this province while attracting new workers that know the industry is stable and will continue growing.”
According to the BCCA, the construction industry ranks #1 in BC as a goods sector employer and contributes 9.7% of provincial GDP, up from 8.9% in 2022. Despite this, investments in BC’s institutional, commercial, industrial, and residential (ICIR) industry have decreased by 11% since February 2020, and labour costs have increased by 11% over the same time period, with the number of trade workers plummeting by 9% in five years.
“These challenges are real,” the letter says. “Prompt payment legislation is an economic necessity in the best interest of the community you serve.”
Next Moves
According to the Attorney General’s office, PPL is still very much on the table, and another version is expected to be tabled this fall.
The provincial government established the industry task force to advance the legislation’s development and provide expert input. ■
Follow the PPL conversation at BCCAssn.org
