Canada's First Prompt Pay Law Moves Forward
Canadian subcontractors are making legislative gains as they push prompt-payment proposals on both the federal and provincial level amid complaints of chronic foot-dragging on invoices for construction work.
A prompt -payment bill backed by the Mechanical Contractors Association of Canada recently cleared the Senate while similar legislation is now pending in provincial assemblies across the country.
Canada is the only western nation that still does not have a prompt payment law for public projects, with the U.S., UK and the European Union all having long since passed legislation, according to a report by the National Trade Contractors Coalition of Canada.
And Canadian subcontractors say the law is needed now more than ever as they battle what they say is a growing trend towards a more drawn-out payment process on part of federal and state governments and the private sector as well.
The proposal would require the federal government to make at least monthly payments to contractors working on public projects, who, in turn, are obligated to make monthly payments to their subs.
“Basically the industry has said enough is enough, we have to change,” said Richard McKeagan of the Mechanical Contractors Association. “This bill we hope will act as a catalyst.”
There are promising political signs for the prompt payment bill, which in the Senate won the support of Canada’s major political parties, said Richard Wong, chair of the construction and infrastructure group at Osler Hoskin & Harcourt LLP.
The proposal now goes to the House of Commons, where it will have to pass next.
“That signals multi-party support for prompt payment in Canada,” Wong said.
Ontario may now be the next place prompt payment legislation gets passed, he added.
A report released last fall by Ontario’s Ministry of the Attorney General and the Ministry of Economic Development, Employment and Infrastructure offered up 100 recommended changes to construction statutes in the province, including the adoption of a prompt payment law and swift, mandatory adjudication of construction disputes, Wong noted in a recent Osler newsletter.
A former legislative proposal is expected out in early June, with final passage likely in early 2018.
“They are furiously getting the bill ready for issuance before the summer recess,” Wong said.
Other provinces have already adopted or are planning to adopt prompt payment laws.
Quebec officials have said they plan to begin applying prompt payment rules to public construction projects this spring, while Alberta Infrastructure began inserting prompt payment clauses in its contracts last year, according to Osler’s industry newsletter.
British Columbia is studying its own set of construction law reforms.
Meanwhile, the lack of any prompt payment on the federal level in Canada and in most of the provinces has put many subcontractors in a tough spot, McKeagan said.
Studies commissioned by the Mechanical Contractors Association have found that subcontractors on average are waiting for payments for 120 days, up from 90 days previously, he said.
The delays have forced some firms to lay off staff or even to declare bankruptcy, McKeagan said. Others may raise their bids to compensate for the risk of not getting paid in a timely fashion.
“We anticipate opposition from those parties that just don’t want to pay on time,” he said.