Construction Deadline Approaching: Two-Year-Old Contracts Must Adapt To New Act

Alberta's Builders' Lien legislation has recently changed and been renamed to the Prompt Payment and Construction Lien Act (the "Act"). The new Act came into force on August 29, 2022 and prescribes timelines and mandatory rules for payments and liens in all construction industry sectors to ensure contractors and subcontractors are paid promptly.

All contracts entered into on or after August 29, 2022 are governed by the new Act. Additionally, any contracts entered into prior to August 29, 2022 that are scheduled to remain in effect for longer than two years after August 29, 2022, must be amended to comply with the new Act within the two-year period (i.e. August 28, 2024).

Of particular interest at this time is the upcoming deadline to amend existing contracts that will change over to being governed by the new Act. This article summarizes the key changes that construction contracts will need to ensure are included.

SUMMARY OF KEY CHANGES

• Proper Invoices – There are minimum requirements for proper invoices which must be followed by contractors to invoke the prompt payment provisions. Proper invoices are to be issued by contractors to an owner at least every 31 days.
• Prompt Payment Timelines - An owner is required to pay a contractor within 28 days of receiving a proper invoice unless the owner issues a notice of dispute within 14 days of receipt. Contractors are required to pay subcontractors within 7 days of receiving payment from an owner unless they issue a notice of non-payment and undertake to refer the matter to adjudication within 21 days. These 7-day periods continue to progress down the construction chain. The exception to the timelines is if payment under the contract is contingent on testing and commissioning an improvement. This paid-when-paid structure only continues as long as a contractor or subcontractor delivers the required notice of non-payment to its subcontractors within the required deadline.
• Lien Registration Deadlines and Holdback Periods – The lien registration deadline is extended to 60 days for general construction work and 90 days for concrete work. Oil and gas wells and sites remain at 90 days. Holdback periods are aligned with these timelines.
• Lien Amount – The minimum amount owed that can be subject to a lien was increased from $300 to $700.
• Progressive Holdbacks – Progressive release of holdbacks is required if the contract value is greater than $10M and will have a completion schedule of more than one year. The holdbacks will be released annually unless otherwise directed by the contract to be on a phased basis.
• Adjudication – An adjudication process was created to resolve certain types of disputes including valuation of services or materials, change orders, non-payment, and lien fund amounts. Timelines are set out to expeditiously resolve these disputes with an adjudicator.

Prompt Payment Deadlines

The Act develops a prompt payment framework whereby an owner must pay its contractors, and contractors must pay their subcontractors, within a legislatively prescribed timeframe. Under the former legislative regime in Alberta, construction contracts were not subject to any statutory prompt payment deadlines.

The various deadlines are as follows:

• An owner is to pay contractors within twenty-eight (28) days of receiving a proper invoice.
• If an owner takes issue with all or a portion of a proper invoice, they have fourteen (14) days after receiving a proper invoice to provide a notice of dispute specifying the amount being disputed and the reasons for non-payment.
• Contractors will have seven (7) days after receiving payment from the owner to pay subcontractors. If only partial payment is received from the owner, the contractor will pay subcontractors the amount paid by the owner. If there are multiple subcontractors, the contractor must divide the amount paid by the owner on a proportionate basis, unless the disputed amount not paid is specific to the work done or materials furnished by a particular subcontractor(s), in which case all other subcontractors must be paid first.
• If an owner does not issue payment, contractors will nonetheless be required to pay subcontractors no later than thirty-five (35) days after providing the proper invoice to the owner.
• A contractor will not be required to pay a subcontractor within the time periods described above if they provide a notice of non-payment to the subcontractor within seven (7) days of receiving a notice of dispute from the owner, or if no notice of dispute was provided, before the expiry of the thirty-five (35) day deadline after issuing the proper invoice to the owner.
• Subcontractors will have seven (7) days from receipt of payment from the contractor to pay subsequent subcontractors or, if the subcontractor has not been paid, forty-two (42) days after the contractor provided the proper invoice to the owner. The same apportionment of payments and notices of non-payment between the contractor and subcontractor similarly apply between a subcontractor and subsequent subcontractor.

What is a Proper Invoice?

To constitute a proper invoice, an invoice must satisfy the following requirements set out in the Act. A proper invoice must contain:

1. The full name and business address of the contractor;
2. The date of the invoice and period during which work was done or materials were furnished;
3. Information identifying the authority, whether in a written or verbal contract, under which work was done;
4. A description of the work done or materials furnished;
5. The amount requested for payment and the corresponding payment terms broken down for the work done or materials furnished;
6. The name, title and contact information of the person to whom the payment is to be sent;
7. A statement indicating that the invoice provided is intended to constitute a proper invoice; and
8. Any other information that may be prescribed through regulation or otherwise.

If an invoice does not comply with the above requirements, the prompt payment deadlines will not apply until the failures are remedied. The new Act requires that a proper invoice be provided to the owner at least every thirty-one (31) days. There is an exception for situations where a contract includes a provision for the testing and commissioning of work and such conditions are not met. However, a contract cannot make the giving of a proper invoice conditional on prior certification of a person or prior approval of the owner to give the invoice.

A proper invoice may be revised if the parties to the invoice agree, the date of the invoice does not change, and the invoice continues to meet requirements (a)-(h). Additionally, the owner and contractor may agree to specific terms as to when proper invoices may be delivered, subject to the thirty-one (31) day limitation.

Adjudication

Construction disputes in Alberta are lengthy and expensive for all parties involved. The Act addresses this concern by establishing a statutory adjudication scheme to resolve disputes. The adjudication process is completed through a Nominating Authority who will appoint an adjudicator. The parties may designate a Nominating Authority that must be used, but they cannot designate an adjudicator.

Adjudication is not available to the parties if an action in court has already been commenced. It also cannot be pursued if the notice of adjudication is given after the date the contract/subcontract is completed, unless otherwise agreed by the parties. The types of disputes that may be referred to adjudication include:

• Valuation of services or materials provided under the contract/subcontract, including written change orders or proposed change orders;
• Payment under the contract/subcontract, including written change orders or proposed change orders;
• Disputes that are the subject of a notice of non-payment;
• Payment or non-payment of an amount retained as a major lien fund or minor lien fund and owed to a party during or at the end of a contract/subcontract; and
• Any other matter in relation to the contract/subcontract that the parties in dispute agree to, regardless of whether or nota proper invoice was issued or the claim is lienable.

A contractor or subcontractor must undertake to refer a matter to adjudication no later than 21 days after giving a notice of non-payment in order to be relieved from the obligation to pay its subcontractors despite non-payment from the owner or contractor, as the case may be.

To initiate the adjudication process, a party must give the other party, and the Nominating Authority on the same day, a written notice of adjudication that will include:

1. Names and addresses of parties to dispute;
2. Nature and brief description of the dispute, including how and when it arose;
3. Nature of the redress sought;
4. Name of the Nominating Authority to whom the party serving notice intends to submit the notice; and
5. Name of the adjudicator requested to conduct the adjudication, if any.

The following table summarizes the subsequent steps and timelines for the adjudication process after the notice of adjudication is provided to the other party and Nominating Authority. The adjudicator may extend any of the deadlines by a maximum of 10 calendar days.

Multiple adjudications may be consolidated into one adjudication if the adjudicator is satisfied that all adjudications in progress are sufficiently related and appropriate for consolidation. The adjudicator's decision is binding on the parties and can be registered as an order of the court unless:

• A party applies for judicial review of the decision;
• The parties have entered into a written agreement to appoint an arbitrator; or
• The parties entered into a written agreement that resolves the matter.

Changes to Builders Liens'

The Act extends lien filing deadlines from forty-five (45) days to sixty (60)days for general construction work and from forty-five (45) days to ninety (90)days for the concrete industry. In addition, the minimum amount owed that can be subject to a lien increased from $300 to $700.

These extended deadlines similarly apply to the period of time that an owner must retain holdback amounts on a contract. The holdback amount continues to be 10% of the value of the work actually done and materials actually furnished. However, the new Act allows for progressive release of holdbacks on larger contracts so that subcontractors do not have to wait until substantial completion for release of their holdback.

Progressive holdback release is required if the value of the contract exceeds $10,000,000 and the contract provides for a completion schedule longer than one year. In such cases, holdbacks are to be paid back annually or pursuant to some other phased basis described in the contract as long as there are no liens filed on the payment date or the liens have been satisfied or discharged.

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