Get ready for reform — Prompt payment and adjudication finally taking effect in the Alberta construction industry
In recent years, a number of Canadian provinces have reformed their construction law regimes with the introduction of prompt payment and adjudication provisions. After extensive deliberation, Alberta has passed its own reforms, which come into force on August 29, 2022. This article focuses on Alberta’s new prompt payment and adjudication regime.
The Province of Ontario was the first province in Canada to significantly reform its construction laws, implementing the first phase of its revised legislation on July 1, 2018, with prompt payment and adjudication following on October 1, 2019. Although the growth of adjudication has been slow in Ontario, these reforms have had a significant early impact upon contract drafting and contract administration. For example, many owner and contractor organizations have entirely revamped their payment systems. Saskatchewan followed suit on March 1, 2022, implementing changes to its Builders’ Lien Act that largely mirror Ontario’s reforms. The federal government introduced and passed its own prompt payment and adjudication regime, which has yet to take effect.
Alberta previously passed significant changes to the Builders’ Lien Act in late 2020. The changes included prompt payment provisions similar to those in other Canadian jurisdictions, the prohibition of pay-when-paid clauses, a longer period to file liens, and the introduction of adjudication. Important details were left to be determined by additional regulations, which have since been published as further amendments to the Act have passed.
While Alberta’s new legislation gives rise to numerous questions, it is critical for all players in the industry to understand the impact and importance of the changes.
On February 25, 2022, Alberta announced the Prompt Payment and Construction Lien Act (the “PPCL Act”) will come into force August 29, 2022, and published the regulations that accompany the PPCL Act including:
- the Prompt Payment and Adjudication Regulation (Alberta Regulation 23/2022, the “Regulation”); and
- the Builders’ Lien Forms Amendment Regulation (Alberta Regulation 22/2022, the “Forms Regulation”).
The Regulations provide a framework for how requirements, such as timely payment, and options, such as the election of one party to solve disputes through the adjudicative forum, will be implemented.
The PPCL Act applies to all contracts or subcontracts entered into after August 29, 2022. For contracts executed prior to August 29, 2022, the Regulation stipulates that such contracts must be amended to comply with these revised provisions within two years (August 29, 2024), if such contracts remain in effect at that time.
The Regulation provides that, subject to the provisions of the PPCL Act requiring that invoices be delivered to the owner at least every 31 days, the owner and the contractor may agree to specify terms as to when proper invoices may be delivered. Within 14 days of receipt of a proper invoice, the owner may dispute payment by filling out a standardized “Owner’s Notice of Dispute”, provided in the Forms Regulation. Upon receiving an undisputed ‘proper invoice’ an owner has 28 days to pay its contractor, who in turn has seven days to pay its subcontractor (and on down the chain).
Increase time period to register a lien
The PPCL Act extends the time period to register a lien from 45 to 60 days. For concrete work (other than ready-mix concrete) and oil and gas work, the period to register a lien will be 90 days.
Late payment interest rate
The Regulation provides that the parties may set the rate of interest for late payments. If no rate is specified in the contract then the interest rate will be the rate specified in the Judgment Interest Regulation (Alberta). For reference, this rate is currently 0.2 percent per year.
The one party opt-in adjudication process
Under the PPCL Act, prior to the completion of a contract or subcontract, one party may bind the other to adjudication, unless a party commences an action in court for the same dispute on the same day. After completion of the contract or subcontract, the parties must agree to avail themselves of the adjudicative process. To utilize the adjudication process, the dispute must be a matter listed in the Regulation. Matters that may be referred to the adjudication process include:
- the valuation of services or materials provided under the contract, a subcontract, or a change order that has been agreed upon or proposed;
- payment under the contract, a subcontract, or a change order that has been agreed upon or proposed;
- 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 or subcontract; and
- any other matters in relation to the contract or subcontract that the parties in dispute agree to adjudicate.
The dispute adjudication process begins with a party to the contract or subcontract providing a written notice to the other party which must include:
- the names and addresses of the parties in dispute;
- the nature and a brief description of the dispute, including details respecting how and when it arose;
- the nature of the redress sought;
- the name of the Nominating Authority to whom the party serving notice intends to submit the notice; and
- the name of the adjudicator requested to conduct the adjudication, if any.
The commencing party must also provide a copy of the notice to the relevant Nominating Authority on the same day they provide notice to the responding party.
A provision in a contract that attempts to name a person to act as an adjudicator in the event of an adjudication is of no force or effect.
An adjudicator for the dispute can be appointed in one of two ways:
- If the parties agree on a specific adjudicator, they have four calendar days after providing the notice of adjudication to inform the Nominating Authority of an agreed upon adjudicator. The Nominating Authority must, within 7 calendar days, appoint the agreed upon adjudicator and notify the parties on the same day.
- If the parties do not agree to a preferred adjudicator, the Nominating Authority must, within 12 calendar days of receiving the notice of adjudication, appoint an adjudicator and notify the parties on the same day.
Within five days of the appointment of an adjudicator, the commencing party must:
- provide the adjudicator with:
- a copy of the notice;
- a copy of the contract or subcontract; and
- copies of any documents the party intends to rely on during the adjudication,
- provide all parties in dispute with copies of any documents the party intends to rely on during the adjudication.
The responding party must, within 12 calendar days of receiving the documents from the commencing party, provide copies of its response to the adjudicator, the commencing party, and all other relevant parties. During the adjudication process, the Regulation allows an adjudicator to:
- issue directions to the parties involved in the adjudication;
- obtain information through independent research;
- conduct on-site inspections of subjects that the adjudicator considers necessary; and
- obtain assistance from construction industry professionals.
Under the Regulation, an adjudicator must make a determination and issue an order within 30 days of receiving documents from the commencing party or, if necessary, extend any deadline in the adjudication process. The Regulation authorizes the adjudicator to make an order directing timely payment to a party in dispute and allowing parties to stop providing services or materials if payments are not made within the deadlines. Once a determination has been issued, the order must be certified by the relevant Nominating Authority and provided to the parties within seven days.
If a party is involved in multiple adjudications it may be possible to consolidate them. Further, any costs and other charges related to an adjudication are equally divided between the parties and paid to the Nominating Authority.
The PPCL Act authorizes the Service Alberta Minister to designate one or more “nominating authorities” who will each in turn be authorized to appoint adjudicators under the Act and establish adjudication procedures (in addition to those set out in regulations under the PPCL Act). The Regulation elaborates on the process for designating a Nominating Authority as well as prescribes obligations on the Nominating Authority. The key obligations include:
- Establishing and maintaining a code of conduct for adjudicators;
- Maintaining a record of determination of all adjudications made within the last three years by the adjudicators appointed by that Nominating Authority; and
- Governing the amount of training to provide to the adjudicators.
The Regulation also outlines the qualifications required to serve as an adjudicator, which include: at least ten years of relevant work experience in the construction sector and sufficient experience in dispute resolution, contract law, legislative interpretation, determination writing, ethics, jurisdiction, and adjudication process.
Additionally, the Regulation requires that every adjudicator complete all training programs required by the Nominating Authority, comply with the code of conduct of the Nominating Authority and pay the required fees and costs to the Nominating Authority.
Terminating the adjudication process or setting aside an adjudicator’s decision
The parties may agree to stop the adjudicative process prior to the adjudicator’s determination.
An adjudicator’s determination is not binding if a court order is made on the matter, the parties enter a written agreement to appoint an arbitrator under the Arbitration Act, or the parties have entered into a written resolution of the matter.
If a party is not satisfied after that point, they have 30 days from the date of the notice of determination to file and serve an application for judicial review. Grounds for judicial review include:
- one of the parties participated in the adjudication while under a legal incapacity;
- the contract or subcontract is invalid or has ceased to exist;
- lack of jurisdiction to adjudicate a matter;
- the adjudication was conducted by someone who did not, at the time, meet the requirements to serve as an adjudicator;
- the adjudication did not follow the appropriate procedures resulting in prejudice to a party’s right to a fair adjudication;
- there was a reasonable apprehension of bias; and
- the determination of the adjudication was the result of fraud.
The court or an arbitrator may consider the merits of a matter determined by an adjudicator. A party has two years from when the notice of adjudication has been sent to commence an action in court.
An adjudicator’s order has the same effect as if it were an order made by an Alberta court if registered within two years of (1) the written notice of determination; or (2) the final determination of an application for judicial review that has not set the adjudicator’s order aside. Written notice of the order must be served within ten days of registration. Payment to a subcontractor further down the chain may be deferred pending the outcome of the enforcement of the order.
Red Tape Reduction Act
Since the passage of the Prompt Payment and Construction Lien Act on November 26, 2020, the government also passed, and Royal Assent was given to, the Red Tape Reduction Implementation Act, 2021 (the Red Tape 2021 Act).
This Red Tape 2021 Act amended a number of statutes, including the PPCL Act.
Most notably, the PPCL Act will not apply to public works (as defined in the Public Works Act), agreements to finance and undertake an improvement where the provincial Crown or a provincial Crown Corporation is a party, or an agreement with any other prescribed person or entity. Previously, road construction projects and irrigation districts were excluded from the Builders’ Lien Act.
The Red Tape 2021 Act bolstered the powers delegated to the Regulation by the PPCL Act, including the ability to prescribe inclusions and exemptions.
Other notable changes
For multi-year contracts exceeding $10 million, owners may be required to proportionally release holdback amounts, provided that no liens have been filed.
The PPCL Act will apply to consulting professional engineers and architects contracted with respect to an improvement.
At least $700 must be owing in order to register a lien, increased from $300.
Three days after issuing a certificate of substantial performance, persons working or furnishing materials must have a reasonable opportunity of seeing the certificate. Under the PPCL Act, such certificate may now be provided electronically in accordance with the applicable contract or agreement.
The Alberta construction industry will no doubt benefit and learn from the experience in other jurisdictions. In anticipation of these changes, industry participants would be well advised to take a close look at their contracts for any required revisions, assess whether their payment systems meet the requirements of the new regime, train their staff on the pending changes to contract administration and consider the opportunities that adjudication may have on their strategy to resolving disputes. The one certainty is that change will be experienced widely across the industry.
This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.