Contractors in the construction industry have historically struggled to collect payment for their goods and/or services. This in turn has resulted in projects—from the building of large pipeline facilities to the construction of residential properties—being slowed down or halted altogether. So it will come as welcome to all contractors that federal legislation aimed at fixing this issue seems to be moving forward.
The Federal Prompt Payment for Construction Work Act, passed almost two years ago as part of the Budget Implementation Act on June 21, 2019 but not yet put into effect, has been held up at least partially by a need to further clarify and finalize regulations internally, according to Public Services and Procurement Canada (PSPC) in a release. However, the PSPC recently released a Request for Information (RFI), asking for industry feedback regarding a proposed approach to establishing an adjudicator authority related to disputes in federal construction projects. This RIF seems to indicate very welcome momentum to move this legislation forward.
The Federal Prompt Payment for Construction Work Act passed as part of the Budget Implementation Act on June 21, 2019, but has not been put into effect due to the need for further clarification and finalization of regulations.
AND JUST WHAT IS THE GIST OF THE ACT?
The Federal Prompt Payment for Construction Work Act binds all parties to a payment schedule and as such promotes the timely completion of construction projects. It requires contractors to have service providers acknowledge in writing prior to beginning a project that their work will be subject to this Act. The legislation establishes a 28-day timeframe for payment of invoices for construction work.
The legislation establishes a 28-day timeframe for payment of invoices for construction work.
If the invoice is not paid in full after that time, interest starts accruing on the unpaid portion until the bill is resolved. Additionally, if the service provider declines to pay for some or all of the construction work, they have 21 days after receiving the invoice to provide the contractor with a notice of non-payment, at which point an adjudicator may be assigned to settle the dispute.
There is protection for subcontractors in the new legislation too. Contractors have until the 35th day after an invoice is received by a service provider to pay each of their subcontractors. If the contractor is only paid in part, they must pay each of their subcontractors on a rateable basis for the work they completed that was not covered by a notice of non-payment. From any remaining amount, contractors must pay their subcontractors at a rateable basis when their work is partly covered by a notice on non-payment.
Surprisingly, the Act will not grandfather existing contracts; instead, it will provide for a one-year deferral period before it applies to existing contracts.
Implementation of the Federal Prompt Payment for Construction Work Act may be a ways off yet, but when it does come into effect it promises to provide welcome relief for contractors and subcontractors alike.
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