Bill 37 Seeks to Introduce Prompt-Payment Legislation for Alberta Construction Industry On October 21, 2020, the Alberta Legislature tabled Bill 37, the Builders’ Lien (Prompt Payment) Amendment Act, 2020. The purpose of Bill 37 (should it receive Royal Assent and proclamation) is to introduce amendments to the Alberta Builders’ Lien Act (the “BLA”). The amendments will be of significant practical effect to all players within the construction industry, as hinted by the fact that the BLA (should Bill 37 receive Royal Assent and proclamation) will be renamed the Prompt Payment and Construction Lien Act. What contracts would the new legislation impact? A contract or subcontract entered into on or after the coming into force of the Builders’ Lien (Prompt Payment) Amendment Act, 2020 would have to conform to the new provisions. The current target date for the proclamation of Bill 37 is July 2021. What contracts would the new legislation not impact? Subject to the regulations, any contract or subcontract entered into prior to the coming into force of the Builders’ Lien (Prompt Payment) Amendment Act, 2020 would be governed by the provisions BLA until expired, terminated, or amended in order to conform to the provisions of the new Act. Key Components of Bill 37 Of the numerous changes proposed by Bill 37, six important amendments stand out: 1. Prompt Payment Bill 37 introduces a new statutory deadline that would force owners, contractors, and subcontractors to either dispute a “proper invoice” within 14 days of its receipt or pay a “proper invoice” within 28 days of its receipt. A “proper invoice” must be consistent with certain requirements established in the legislation, and the contract, and may be supplemented by regulations. There are some limits established by the amendments on what contracts may say. For example, a party’s right to issue a proper invoice cannot be made conditional upon prior certification of, for example, a project consultant, or the prior approval of an owner. Testing and commissioning of the improvement in relation to which the proper invoice relates can, however, be a precondition to the issuance of a “proper invoice,” but only if provided for in the contract. 2. Dispute and Adjudication of a Proper Invoice Should a party in receipt of a proper invoice wish to dispute it in some fashion it must issue a dispute notice to the party who issued the proper invoice within 14 days of its receipt. We don’t know what the legal requirements of a dispute notice are yet, as they have not yet been established. Should any amounts contained in the proper invoice not be disputed, they must be paid within 28 days. Interest begins to be owing at a prescribed rate when a proper invoice is unpaid and due (after the 28 day deadline expires). The interest rate will be set by a future regulation. Following the issuance of a dispute notice, either party may refer the matter to adjudication, which is a final and binding process unless successfully challenged on review of the Court for reasons such as an error of law. In addition to an issue arising out of a dispute notice, any matter prescribed by the accompanying regulations could be referred for adjudication. It is important to note that only parties who have contracted with one another have access to this form of adjudication. This means that parties who may have conflicting interests, but do not have a direct contractual relationship, such as an owner and a subcontractor, could not resolve their issues through adjudication under the proposed amendments. Various important aspects of the adjudication mechanism remain to be published, such as timelines and the basic procedures and evidentiary standards that will be employed within the process. It’s also unclear how the adjudication process will interplay with parallel Court proceedings seeking the enforcement of lien rights. 3. Elimination of Pay-When-Paid Clauses Pay-when-paid clauses allow a party to withhold payment from a party below them in the construction chain until they themselves have received payment from the party above them. The amendments will render these controversial clauses of no force or effect. 4. Extension of time periods The following timelines would change: The periods applicable to the registration of a lien for improvements relating to the furnishing of concrete as a material or work done in relation to concrete will increase from 45 days to 60 days; and The periods applicable to the registration of a lien for all other improvements will increase from 45 days to 90 days. For improvements to oil and gas wells and well sites, the statutory lien period will remain 90 days. 5. Holdback Release The lien fund and holdback system well known to those familiar with the BLA will also change significantly. For example, an owner may currently release the lien fund without risk only where there are no liens registered and, in the case of the major lien fund arising in connection with a project that does not involve an oil or gas well or site, after 45 days from the date that a Certificate of Substantial Performance (“CSP”) is issued or, where no CSP is issued, 45 days from the date of completion of the prime contract. This feature of the BLA can lead to significant cash flow issues for contractors since large projects can often take years to complete. The amendments attempt to address this by providing that an owner may, without risk, progressively release the major lien fund where certain requirements are met regardless of whether or not a CSP has been issued. 6. Right to Information Only a lienholder may demand access to financial information, contracts and subcontracts. Bill 37 expands the scope of those who will be entitled to access such information. What’s Next? The amendments tabled by Bill 37 will significantly alter the contractual, risk management and flow of payment practices currently utilized in the construction industry. If passed by the Alberta Legislature upon its third and final reading, Bill 37 has a projected proclamation date of July, 2021. The changes it puts forth are therefore not only incredibly significant, but also fast approaching. It’s imperative that all members of the construction industry take the time to familiarize themselves with the changes proposed in Bill 37, and begin taking steps to plan for its impact. The Construction Team at Parlee is following the matter very closely, and we will be pleased to answer any questions or concerns that may arise along the way. Disclaimer: This article is to be used for educational and non-commercial purposes only. Parlee McLaws LLP does not intend for this article to be a source of legal advice. Please seek the advice of a lawyer before choosing to act on any of the information contained in this article.