In BC's construction industry, trade contractors frequently contend with long waits to receive payment for their completed work. This longstanding practice leads to cash flow problems for many small to mid-sized companies, and the growth of "pay-when-paid" clauses in construction contracts have only exacerbated this problem.
A number of provinces across Canada and the federal government have introduced prompt payment legislation, imposing payment deadlines after construction projects have completed. In May, the BC Liberals proposed Bill M-223, loosely based on Ontario's Construction Act which came into effect on July 1, 2018.
If passed, Bill M-223 would amend BC's current Builders Lien Act and establish prompt payment requirements that would apply to builders, contractors, and subcontractors. Under the proposed legislation, the payment process would unfold as follows:
- The contractor would first submit a "proper notice" (as per the definition in the bill) to the owner.
- The owner would then either pay the invoice within 28 days or within 14 days, issue a notice of non-payment to the contractor including reasons for non-payment.
- The contractor must pay the subcontractor(s) within 7 days of receiving full payment from the owner or issue a notice of non-payment to the subcontractor(s).
- In the event that an owner does not pay the amount of the "proper invoice" that would have been remitted to the subcontractor(s), the contractor must pay the subcontractor(s) within 35 days of submitting the invoice or within 21 days of submitting the invoice, issue its own notice of non-payment to the subcontractor(s) and initiate adjudication.
- The same rules would apply to any subcontractors paying their own subcontractors.
In its current form, there are areas of the bill that raise questions which will likely need to be addressed prior to enacting the legislation. Firstly, Bill M-223 does not clearly specify whether pay-when-paid clauses could still be applied. Additionally, while there is mention of an adjudication process, there are no details about the process itself and how it would work. Although prompt payment legislation is on the horizon for BC, the current proposed bill will likely need to undergo revisions before we can expect it to be passed into law.
For more details about this proposed legislation and prompt payment requirements in other jurisdictions, see "Prompt Payment Legislation in British Columbia: Long Overdue?" by Clark Wilson LLP (August 16, 2019).
For information and resources on insurance and risk management for the construction industry, please contact a CapriCMW Risk Advisor.