A Reminder of the Changes that may Affect Your Business in 2023 - Prompt Payment and Construction Lien Act

Q: What is a Proper Invoice?

For an invoice to be considered a “Proper Invoice” it must be in writing and contain the following:

• the contractor’s name and business address;
• the date of the invoice;
• the period the invoice covers;
• information identifying the contract (whether written or oral) under which the work was provided;
• the amount for payment and corresponding payment terms;
• the name, title, and contact information of the person to whom the payment must be sent;
• a statement indicating the invoice is intended to be a Proper Invoice; and
• other requirements agreed to by the parties, if applicable, so long as they do not conflict with the Act.

Q: What if one party in the chain does not receive a full payment?

If a party receives only a portion of the amount payable on an invoice, it must pay a proportionate amount to each of its subcontractors within 7 days. For example, if a GC receives 70% of the payment on an invoice from the owner, the GC must pay each of their subcontractors 70% of what is owed to them within 7 days. The GC cannot wait until the full payment is received. However, if the non-payment occurs in relation to a specific subcontractor, the other subcontractors must be paid in full and not on a proportionate basis within 7 days.

Q: What if the owner disputes an invoice or a portion of an invoice?

If a project owner disputes an invoice, they must provide a notice of dispute to the GC within 14 calendar days of receiving the invoice. The notice of dispute must include the amount that is being withheld and the reason for non-payment. The GC is then obligated to advise the subcontractors of the notice of dispute without delay.

The GC then has 7 calendar days to provide a notice of non-payment to its subcontractors. The notice of non-payment must specify the amount being withheld and the reason for non-payment. Each subcontractor is obligated to advise each sub-subcontractor of the notice of non-payment.

If the GC does not deliver a notice of non-payment to its subcontractors within 7 days, the GC must pay its subcontractors in full within 35 calendar days of issuing the Proper Invoice to the owner, even if it did not receive full payment from the owner.

Q: What if a GC or subcontractor disputes a portion of an invoice?

The clock starts running on the date the Proper Invoice is received by an owner from a contractor. From that date, if there is a dispute as to payment, the GC has 35 days, and the subcontractors have 42 days to provide its subcontractor(s) with the following:

• Notice of Non-Payment with the amount being withheld and reasons for withholding;
• An undertaking to refer the matter to adjudication within 21 days of notice; and
• A copy of a dispute notice or notice of non-payment it has received.

I. Adjudication

If a dispute arises, parties now have the option to go to adjudication. Adjudication is less time-consuming than going to court, but the decisions are binding.

Adjudicators are experienced participants in the construction industry and are certified and trained through Nominating Authorities. At the time a contract is signed, project owners and contractors can choose a Nominating Authority they would prefer to work with in the event of a dispute. If the Nominating Authority is not named in the contract, the initiating party can choose the Nominating Authority they want to manage the adjudication process.

Provided a court application has not already started, a party is free to submit a notice for adjudication for disputes regarding valuation of services/materials under the contract, payment, notices of non-payment, payment or non-payment of an amount retained as a lien, and any other matter in relation to the contract or subcontract that you and the other party in dispute agree to.

Nothing in the Act, including the adjudication process, removes builders’ liens or the obligations and potential impacts a lien may have on title to a Property. However, the Act does extend the previous deadline to file a lien from 45 days to 60 days for most projects. There is now a 90-day lien period for work or materials provided with respect to improvements primarily related to the furnishing of concrete, and the period for filing a lien in respect to improvements for an oil or gas well/well site remains 90 days.

II. Checklist

Things to consider based on the new legislation:

• Check the dates of existing contracts for those entered into on or after August 29, 2022, so you are aware of which contracts are subject to the new rules;
• Take note of any contracts entered into before August 29, 2022 which will still be in effect on August 29, 2024, as they will be subject to the new rules on that date;
• Update invoice templates so they conform to the requirements of a Proper Invoice;
• Prepare templates of notices of disputes or notices of non-payments;
• Prepare reminders to track the dates of delivery of Proper Invoices so that you know when the clock starts running for each contract;
• Ensure accounting protocols are in place to satisfy the tight payment timelines; and
• File and organize documents to support or defend any matters that are referred to adjudication.

III. Summary

If you have any questions regarding the application of the Prompt Payment and Construction Lien Act to your business, your contracts or projects, we invite you to contact us to discuss these matters. In the event that disputes or issues arise with making or receiving timely payments, we would welcome the opportunity to discuss your options under the new adjudication process and assist you in navigating that process or any lien process.