On December 12, 2023, the Minister of Public Services and Procurement Jean-Yves Duclos announced that the federal prompt payment legislation, the Federal Prompt Payment for Construction Work Act (the "Act"), came into force on Dec. 9, 2023.

The new legislation aims to tackle payment delays along the contracting chain and enhance financial stability in the industry, protecting vital construction jobs and making it easier to do business with the federal government.

The Act introduces legislative payment timelines and fast-track dispute resolution for federal construction projects. This follows similar prompt payment and adjudication construction law reforms in Ontario, Alberta and Saskatchewan. Nova Scotia and Manitoba have also passed similar amendments, but these have yet to come into force as of the date of this Building Brief article.

Applicability

The Act applies to any service provider, contractor or subcontractor that is to perform construction work for the purposes of a construction project located in Canada in respect of any federal real property or federal immovable, as defined under the Federal Real Property and Federal Immovables Act.

A construction project is defined as containing one or more of the following elements in a contract between a contractor and His Majesty or a service provider:

  1. the addition, alteration or capital repair to, or restoration of, any federal real property or federal immovable;
  2. the construction, erection or installation on any federal real property or federal immovable, including the installation of equipment that is essential to the normal or intended use of the federal real property or federal immovable; or
  3. the complete or partial demolition or removal of any federal real property or federal immovable.

Construction work means the supply of materials or services, including the rental of equipment.

Before His Majesty or a service provider enters into a contract or subcontract with a person under which that person is to perform construction work, His Majesty or that service provider has a duty to inform the person that they will be subject to this Act if they enter into the contract and provide them with any information prescribed by regulation.

It should be noted that the Governor in Council may, by order, exempt a construction project from the application of the Act.

Prompt payment

The Act introduces a prompt payment regime that is similar to the prompt payment regimes in Ontario, Alberta and Saskatchewan.

The federal government must make payments within 28 calendar days after receiving the proper invoice. The contractor then must pay each of its subcontractors no more than seven days thereafter. The subcontractors will have another seven days to pay their subcontractors, and so on down the contracting payment chain.

The federal government may decline to pay for some or all of the construction work, if, no later than the 21st day after the day on which the proper invoice is received, His Majesty or the service provider provides the contractor with a notice of non-payment.

Adjudication

The Act introduces fast-track adjudication of construction disputes that is similar to the adjudication regimes in Ontario, Alberta and Saskatchewan.

Canada Dispute Adjudication for Construction Contracts ("CanDACC") is the Adjudicator Authority under the Federal Prompt Payment for Construction Work Act. As the Adjudicator Authority, CanDACC is responsible for administering construction-related adjudications.

Adjudication under the Act is not mandatory. If a contractor or subcontractor has not been fully paid for its construction work within the time limit provided under this Act, they may choose to refer the matter to adjudication and seek a determination with respect to the non-payment. A notice of non-payment must be provided no later than the 21st day after the later of: (a) the day on which the contractor receives a certificate of completion with respect to the construction project from His Majesty or a service provider; and (b) the expiry of the time limit provided under this Act for payment for that work, if any of its construction work is covered by the last proper invoice submitted with respect to the construction project.

An adjudicator's determination will be binding unless the parties come to a written agreement or the determination is set aside by a court order or arbitral award. Courts or arbitrators will have jurisdiction to consider any adjudicated matter on its merits.

Holdback

The Act expressly permits provincial statutory and contractual holdbacks. Any payment for construction work made to a party may be subject to a holdback provided for by the contract entered into between that party and the party that is to pay them. However, the amount of a holdback made under the contract cannot exceed what that amount would be if the holdback was made under the construction law of the province in which the construction project is located, and the holdback must be paid no later than the day on which that payment would be made under the construction law of the province in which the construction project is located.

Transition

Similar to provincial prompt payment statutes, the Act includes a transition provision. The Act does not apply, for one year after coming into force, to contracts and subcontracts to perform construction work entered into before Dec. 9, 2023.

Designation of province

The Act permits the Governor in Council by order to designate any province if the province has prompt payment and adjudication regimes that are reasonably similar to the regimes set out in the Act. Where that designation occurs, federal construction projects in those provinces will be exempt from the Act's prompt payment regime and must, instead, comply with legislation in the designated province. It has already designated Ontario, Saskatchewan and Alberta. We can expect future designations for other provinces. Designation does not apply to any construction project that straddles the border between two or more provinces. Careful consideration of the extent of the inapplicability of the Act and the application of provincial regimes is critical.

Takeaways

Federal government construction projects serve as significant sources of employment and often boast extensive scopes, engaging multiple general and subcontractors concurrently. Federal projects, such as bridges, dams, highways, and buildings may experience a considerable impact. In light of the new Federal Prompt Payment for Construction Work Act, a few strategic steps for industry participants include:

  • whether the construction project relates to federal real property or a federal immovable;
  • whether the project satisfies the statutory definitions of "construction project" and "construction work";
  • whether the project is located in a designated province and the applicability of the provincial legislation;
  • considering any appropriate amendments to procurement and contract documents to reflect the applicable regime; and
  • reviewing existing contractual provisions and payment mechanisms to ensure compliance with the Act.

The introduction of the new federal prompt payment and adjudication scheme marks a positive step forward by ensuring swift resolution of construction disputes. However, the extent to which the industry will embrace and actively utilize the federal adjudication process remains uncertain. The success of the system will ultimately depend on widespread acceptance and implementation within the construction community.

The rules about prompt payment and adjudication at the federal level are quite similar to their provincial counterparts, such as Ontario's Construction Act. However, it is important not to assume that they are worded or are applied in the same way. It is crucial for stakeholders to consult legal advice to understand and follow the requirements of the federal and provincial regulations to avoid misunderstandings or issues when it comes to prompt payment and adjudication.

How Gowling WLG can help

Gowling WLG has been deeply immersed in the construction law reform process across the country. We have held many events and published many articles since the introduction of the amendments to provincial construction laws, and similar changes that are coming across the country.

We would be happy to meet with you or your organization to discuss your questions and concerns about the Federal Prompt Payment for Construction Work Act or any other provincial construction laws. If you have any questions, please contact any member of our Infrastructure and Construction Industry Group.