Federal Prompt Payment for Construction Work Act comes into force

The Federal Prompt Payment for Construction Work Act (the Act) came into force on December 9, 2023. The Act represents a major milestone in a process that included an industry engagement initiated in January 2018, royal assent given in June 2019 and the publication of regulations under the Act in February 2023, and which follows the enactment of similar prompt payment legislation in Ontario, Saskatchewan and Alberta.

Prompt payment initiatives are in various stages of implementation in other provinces; for instance, prompt payment statutes in New Brunswick, Nova Scotia and Manitoba have received royal assent but are not yet in force, while Québec has completed a successful prompt payment pilot project and British Columbia is currently conducting prompt payment consultations. In each of these other provinces, the Act creates the interesting dynamic of leading the application of prompt payment legislation in the context of those construction projects covered by the Act.   

Applicability

The Act generally applies to contracts with His Majesty in Right of Canada (or with a service provider under contract with His Majesty) and a contractor, and associated subcontracts, for the supply of materials or services to a construction project relating to federal real property or a federal immovable.  This latter requirement is important because, as we discussed in a previous post, the Act does not apply to a construction project simply because the construction project relates to a federal undertaking absent that requirement.

Also noteworthy are the definitions of contractor and service provider that specifically exclude a lessor or lessee of the real property or immovable, so careful consideration of the nature of the applicable real estate rights is critical. Where the Act applies to a construction project, section 8 of the Act requires His Majesty or the service provider to inform the contractor that the contract will be subject to the Act, and the contractor to similarly inform its subcontractors. These duties to inform are intended to reduce the amount of confusion, particularly by subcontractors, as to which construction projects the Act will apply to.

Similar to provincial prompt payment statutes, the Act includes a transition provision which, in this case, provides that the Act does not apply, for one year after coming into force, to contracts to perform construction work entered into before December 9, 2023.

Note that subsection 6(1) of the Act permits the Governor in Council to designate any province that has payment and adjudication regimes that are “reasonably similar” to the regimes set out in the Act. It did so on December 8, 2023, by designating Ontario, Saskatchewan and Alberta despite some differences in the details of each of their regimes. We can expect future designations for other provinces.

Finally, note that subsection 6(2) of the Act works by rendering certain provisions of the Act inapplicable to contractors and the entire Act inapplicable to subcontractors and service providers. Again, careful consideration of the extent of the inapplicability of the Act and the application of provincial regimes is critical.

Preparing to comply

For industry participants, some strategic first steps arising from the considerations above include determining

• whether the construction project relates to federal real property or a federal immovable
• whether the property or immovable is subject to a lease
• whether the work and project at issue satisfy the applicable statutory definitions including that of “construction project”
• whether the contract for construction work was signed before December 9, 2023
• for contracts subject to the one-year grace period, whether the schedule for the performance of the work is likely to extend beyond that grace period
•  whether the construction project is located in a designated province

Depending on the applicable jurisdiction and property or immovable involved in the construction project, it would be advisable to consider any appropriate amendments to procurement and contract documents to reflect the applicable regime.

While the adoption curve of the construction industry is expected to shorten with each successive Canadian jurisdiction that enacts prompt payment legislation, there will be the inevitable transitional and teething issues arising in areas such as the interpretation of the non-application of the Act and the applicability of the provincial legislation, existing contractual provisions that may address transitional issues and new proposed contractual provisions that attempt to balance the application of the Act both at the contract and subcontract levels.

If you have any questions or require additional analysis, please contact any member of our National Construction and Infrastructure Group.