Preparing for the Builders’ Lien and Prompt Payment Act

Nova Scotia will soon have an amended and renamed Builders’ Lien Act, which will introduce a prompt payment scheme as well as an adjudication process to be followed in the case of non-payment.

Bill 119, the bill to amend the Builders’ Lien Act, received royal assent on April 12, 2019, but will not come into force until officially proclaimed by the Governor in Council. While no date has been set for the proclamation, it is important to be aware of the pending changes as the Builders’ Lien and Prompt Payment Act (as it will be renamed) may be proclaimed into force quickly, and the industry needs to be in a position to hit the ground running once that occurs.

Before getting into the details of the amendments, it is worth noting that current contracts may subsequently be controlled by the amended Act. At present, the new scheme provides no grandfathering clause, so the new prompt payment scheme could apply to all construction projects – even those with pre-existing contracts. That being said, s. 3(b) of Bill 119 does grant the Governor in Council the power to exempt construction contracts or classes of construction contracts from the requirements of the new prompt payment scheme, so it is possible that this will be addressed in the regulations. It is also likely that the regulations will be amended to flesh out other aspects of the new approach to payment. Where the amended Act does not address certain aspects, it is instructive to look to Ontario and Saskatchewan, which recently made similar changes to their builders’ lien legislation.

Prompt Payment Scheme

Under the amended Act, the contractor will be required to provide a “proper invoice” to the owner at the “prescribed times”. A “proper invoice” must include the contractor’s name and address, the date of the invoice, the period in which the invoiced work was completed or materials provided, who authorized the performance of the work or furnishing of the materials, a description of the work completed, the amount payable for the work or materials, and contact information for the payee. Bill 119 does not set out the “prescribed times”; this will likely be established through the regulations. Ontario and Saskatchewan require monthly invoices, and it seems likely that Nova Scotia will do the same.

Upon receipt of the proper invoice, the owner must either pay the invoice or issue a notice of non-payment specifying the amount it refuses to pay and the reasons for non-payment. Again, the deadlines will be set in the regulations; both Ontario and Saskatchewan set deadlines of 14 days to provide a notice of non-payment and 28 days to pay the invoice. A recent survey of industry participants carried out by the Province of Nova Scotia contains proposed deadlines of 10 to 14 days to issue the notice of non-payment and 28 days or 30 days to make payment.

If the owner pays the contractor in accordance with the proper invoice, the contractor must pay any subcontractors within the prescribed timelines. Both Ontario and Saskatchewan’s schemes require payment of subcontractors within 7 days, while the Province’s survey proposes 7 or 10 days.

If the owner disputes all or some of the proper invoice, then the contractor is to pay the subcontractors on a proportionate basis. If the amount not paid by the owner is specific to one subcontractor, then the other subcontractors are paid in the normal course. In either instance, the contractor is required to make up the shortfall unless the contractor also issues a notice of non-payment to the relevant subcontractor(s). Both Ontario and Saskatchewan require the contractor to either make payment or issue a notice of non-payment within 7 days. The Province’s survey does not contain a proposed timeframe, but based on the other timelines, 7 to 10 days appears likely.

The same process carries on down the chain. The subcontractor must issue a proper invoice to the contractor, and the contractor may either pay it or issue a notice of non-payment. Depending on the contractor’s choice, the subcontractor has the same obligations as the contractor does to any of its own sub-subcontractors. The deadline for the subcontractor will likely be the same as for the contractors; that is the case in both Ontario and Saskatchewan.

Adjudication Process

If a party issues a notice of non-payment, the next step is adjudication. The exact form of adjudication will be set in the regulations. Again, looking to Ontario and Saskatchewan is instructive. In both jurisdictions, adjudication can only be referred to a person who has been identified as a qualified adjudicator by the authorized nominating authority. In Ontario it is Ontario Dispute Adjudication for Construction Contracts, while Saskatchewan has not yet created its authority. Of particular note, the parties in both of those jurisdictions can pre-set certain adjudication procedures in their contracts.

In Ontario and Saskatchewan, within 5 days of the adjudicator’s appointment, the party initiating the adjudication must provide the adjudicator with the documents it intends to rely upon for the adjudication. While the adjudicator then has a fair bit of latitude to design the adjudication procedure (if not already defined in the contract), the adjudicator must render a decision within 30 days, unless the parties agree otherwise. If the adjudicator orders a party to make a payment, the party must do so within 10 days of receiving the decision.

Nova Scotia is considering the above adjudication approach, as well as an adjudication process based on s. 107 of its Trade Union Act. That process involves much faster timelines. The parties select an adjudicator, and then provide the relevant documents to the adjudicator the next day. The hearing is then heard a day later, and a decision is released two days after the hearing.

Cox and Palmer’s construction lawyers are available to assist with any questions regarding the upcoming Builders’ lien and Prompt Payment Act, and to further discuss how it may impact your business.