Putting the Prompt back into Payment through the proposed Bill M-223 in B.C.
Trade contractors often face significant delays in payment on construction projects, as funds slowly wind their way down the "construction pyramid" from developers to general contractors to trade contractors. The proliferation of "pay-when-paid" clauses in contractor-subcontractor agreements in recent years (which we have written about here), has further increased the time lag for many trade contractors between completion of their work and payment. Such delays can severely restrict trade contractors' cash flow, and often result in crippling slowdowns on construction projects when builder's liens are filed. In response to these concerns, the federal government and several provinces have now each proposed or enacted legislation to create "prompt payment" regimes for construction projects. The various laws all share the feature of setting tight timelines for the payment of trade contractors after their work is completed on a project.
In keeping with this trend, on May 28, 2019, BC Liberal House Leader Mary Polak introduced Bill M-223 (the Prompt Payment (Builders Lien) Act) (hereafter "Bill M-233") during the most recent parliamentary session of the Legislative Assembly of British Columbia. Bill M-233, if passed into law, will amend the existing British Columbia Builders Lien Act to create prompt payment rules for builders, contractors, and subcontractors.
The prompt payment provisions of Bill M-233 are closely patterned upon the first phase of the new Ontario Construction Act, which took effect July 1, 2018. Prompt Payment legislation comes into full effect in Ontario on October 1, 2019. What does that really mean for the industry though? Will it ease the tension between GCs and subtrades?
The prompt payment process in British Columbia under Bill M-233 would be as follows:
- A contractor must first provide a "proper invoice" (as defined by Bill M-233) to the owner, which triggers the owner's payment obligation;
- The owner is then required to pay the invoice within 28 days, unless it issues a "notice of non-payment" to the contractor in respect of some or all of the amounts payable under the invoice, and which details the reasons for non-payment;
- Any non-payment notice issued by an owner must be provided to the affected parties, along with reasons for non-payment, within 14 days of the owner receiving the invoice;
- Upon receiving full payment from an owner after issuing a "proper invoice", the contractor must either:
- pay its subcontractors within the next 7 days; or
- issue its own notice of non-payment to the subcontractor.
- If the owner does not pay the portion of a "proper invoice" from a contractor that relates to a particular subcontractor, the contractor still must either:
- pay that subcontractor within 35 days of delivering the invoice; or
- deliver its own non-payment notice to its subcontractors, and also undertake to refer the matter to "adjudication" (as described below) within 21 days of delivering the notice.
- Similar prompt payment rules apply to subcontractors paying their own subcontractors.
We note that it remains unclear under Bill M-233 whether contractors or subcontractors in British Columbia will still be able to rely on "pay-when-paid" clauses under the proposed law. Neither Bill M-233 nor the Ontario Construction Act deal explicitly with the issue of "pay-when-paid" clauses, and whether the prompt payment regimes they establish can be contracted out of by the parties to a construction contract. For practical purposes, however, it appears likely that these regimes will preclude any reliance on such clauses, since a contractor or subcontractor under either regime is ultimately required to either pay their subcontractor within a prescribed time, or refer the matter for adjudication (after which a payment order may be made).
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