A primer on Alberta's prompt payment legislation and regulations

On February 25, 2022, after consultation with construction industry stakeholders and legal counsel, including Burnet, Duckworth & Palmer LLP, the Alberta Government published the Prompt Payment and Adjudication Regulations and proclaimed the Prompt Payment and Construction Lien Act in force as of August 29, 2022 (the Prompt Payment Rules).

The Prompt Payment Rules amend and significantly supplement the longstanding Builders' Lien Act and will significantly change how construction industry payment disputes are resolved in Alberta. It is critical that the industry familiarize itself with these changes.

Coming into force and transitioning to the New Act: proceed with caution

Any contract or subcontract entered into after August 29, 2022, shall be subject to the Prompt Payment Rules. Over the coming months, businesses should review and revise their contracts to ensure contractual payment terms are consistent with the Prompt Payment Rules.

Any contract or subcontract entered into prior to August 29, 2022, however, is subject to a two-year transition period wherein the Prompt Payment Rules do not apply.

This means there will be up to a two-year period where some contracts, including the lien rights and adjudication rights discussed below, will be governed by the Prompt Payment Rules while other contracts will still be governed by the pre-existing law, including the former Builders' Lien Act.

New lien periods and rights under the Prompt Payment Rules

Historically, except for improvements to oil and gas wells and well sites, the default time period for a lien to expire was 45 days after the last day that work was performed or materials supplied, or the contract was abandoned. For oil and gas wells and well sites, this time period was extended to 90 days. Now, however, under the Prompt Payment Rules:

• the default time period to file a lien is extended from 45 to 60 days; and
• while the oil and gas lien period does not change, there is an additional extension for any improvement primarily relating to "the furnishing of concrete as a material" or "work done in relation to concrete", also to 90 days.

As a result, the holdback periods are thereby also extended to 60 and 90 days, respectively.

While "work done in relation to concrete" expressly excludes ready-mix concrete, understanding what work qualifies pursuant to this lien right will be an issue for owners and general contractors to consider and will likely see some judicial consideration in the future. For example, is formwork that is primarily performed for the purposes of a concrete pour an "improvement primarily related to…work done in relation to concrete"? Absent further clarification, owners and general contractors should be cautious in releasing holdback payments earlier than 90 days for work relating to concrete.

Progressive holdback release

Notwithstanding the general extensions to the lien and holdback periods, the Prompt Payment Rules also include a provision allowing for the progressive (annual) partial release of holdback for longer-term, large scale contracts. These provisions provide relief to subcontractors who perform improvements early on a project, but who have historically had to wait for the substantial completion of the project for the release of their holdback.

Invoices to be paid promptly

Much of the Prompt Payment Rules' content concerns "prompt payment" requirements. These rules were instituted to avoid or minimize the time "lags" between submitting and being paid for invoices, and to otherwise identify early disputes between the parties as to payment.

In general, the Prompt Payment Rules require that:

• subject to narrow exceptions, contractors must submit proper invoices at least every 31 days;
• upon receipt of a "proper invoice" from a contractor, an owner must either: give the contractor a notice of dispute within 14 days of receiving the invoice, or pay the invoice within 28 days of receiving the invoice;
• contractors must pay subcontractors for work included in a proper invoice within a week of receiving payment of the proper invoice from the owner, unless they issue of notice of dispute within 7 days of receiving an owner's notice of dispute or within 35 days of the contract issuing a proper invoice to the owner if the owner does not pay the full amount of the proper invoice; and
• a similar series of deadlines and obligations carry through to the payment relationship as between subcontractors of subcontractors.

The Prompt Payment Rules (specifically, the Builders' Lien Forms Amendment Regulation) provide the forms to which each of the above notices must comply.

The requirements for a "proper invoice" are now prescribed by the Prompt Payment Rules, and contractors and subcontractors should review and incorporate these requirements into their invoices.

Disputes can be subject to adjudication

As a corollary to identifying disputes early, the Prompt Payments Rules establish a system to adjudicate disputes in a timely manner. In particular, rather than requiring parties to resolve their disputes through litigation, parties can participate in adjudication. Forms to proceed with adjudication are included in the Builders' Lien Forms Amendment Regulation.

Matters that may be submitted to adjudication include disputes pertaining to the valuation of services or materials, payment, change order, notices of non-payment, liens, and other issues related to proper invoices. As well, there are provisions to consolidate adjudications if the matters are related to one another (e.g. owner dispute with a contractor relating to work by a subcontractor). Similar to the rules around prompt payment, there are tight procedural timelines for completing adjudication and obtaining a timely decision. Further details on the fees and procedure will be established by the Nominating Authorities that administer the adjudication system.

Importantly, adjudication decisions are "interim-binding" outcomes—in other words, subject to certain limits, adjudication decisions can be registered with Court and enforced like a judgment; nevertheless, the parties can still submit their disputes to litigation or arbitration, and the outcome of that litigation or arbitration could pre-empt or otherwise reverse the adjudicated outcome.

Looking to the future

The transition provisions of the Prompt Payment Rules mean that for the next two-and-a-half years parties must pay particular attention to which set of rules apply—the former Builder's Lien Act, or the new Prompt Payment Rules. Important rights, including lien rights, will be affected by the timing of when contracts were entered into. There will be a transition period as parties begin to refer matters to adjudication and begin to better understand the procedural rules that will be applied.

For more details on how these changes will affect your business, please contact our Construction Group.