Saskatchewan leads Western Canada to prompt payment and adjudication
On March 1, 2022, Saskatchewan became the first western and the second Canadian province or territory to bring into force prompt payment and mandatory adjudication in an effort to facilitate prompt payment down the construction pyramid. The new prompt payment and adjudication regime, as set out in the The Builders’ Lien (Prompt Payment) Amendment Act, 2019 (Amendment Act) and The Builders’ Lien Amendment Regulations, 2020 (SR 92/2020) (Regulations), is layered onto the existing lien regime and will continue to be known as The Builders’ Lien Act (Act).
Saskatchewan now has two alternative versions of the legislation in play:
- The Builders’ Lien Act and The Builders’ Lien Regulations as it existed as of February 28, 2022; and
- The Builders’ Lien Act (as amended by the Amendment Act) and The Builders’ Lien Regulations (as amended by the Regulations) as of March 1, 2022,
with the transition provisions determining which version will govern the particular improvement or contract. Judging from Ontario’s experience and lessons learned to date, there can be confusion, even amongst owners as well as contractors, subcontractors, lenders and other stakeholders, as to which version applies. In addition, there are a number of exemptions to bear in mind, such that the prompt payment and adjudication provisions will not apply to: (1) architects, engineers, land surveyors; (2) persons who enter into a contract for services or materials (including any activities respecting exploration, development, production, decommissioning or reclamation) for any improvement with respect to a mine or mineral resource that is not oil or gas; or (3) persons who enter into a contract for services or materials with respect to an improvement related to infrastructure in connection with the generation, transmission or distribution of electrical energy pursuant to The Power Corporation Act.
The basic rules are that if a “contract” for an “improvement” was entered into before March 1, 2022 (regardless of the date of the subcontract), or if the premises with respect to which an improvement is being made are the subject of a lease entered into before March 1, 2022, the Act and regulations as of February 28, 2022 will continue to apply to that improvement. The prompt payment and adjudication provisions in Part I.1 and II.1 of the Amendment Act apply to contracts entered into on or after March 1, 2022, and with respect to subcontracts made under those contracts. Lastly, if an arbitration had been commenced under section 85 of the Act before March 1, 2022, that arbitration may be continued as if that section had not been repealed by the Amendment Act.
Such transition provisions are not uncommon to allow those who have spent considerable lead time structuring their projects and contracts some ability to continue under the old rules, although details differ from those in Ontario and Alberta. Moreover, the transition provisions are not straightforward or free from interpretation, with analytical nuances including the consideration of different wording amongst the transition rules, references to contracts vs. improvements, and application to more complicated project structures such as multi-prime or construction management (e.g., CCDC 5A/CCDC 17).
Below is a brief refresher of the key features of the new provisions.
Under the new payment regime, a contractor must submit a “proper invoice” to the owner in compliance with the legislation and the terms of the contract on a monthly basis, or as required by the contract. The prompt payment clock starts ticking from the date the owner receives a proper invoice from the contractor, and the owner must either pay the contractor within 28 days of the date of receipt, or issue a notice of non-payment in the prescribed form and manner within 14 days of the date of receipt if it disputes all or any portion of the proper invoice.
If a contractor receives full payment, it must pay its subcontractors whose invoices were included in such proper invoice within seven days of receipt of payment. If a contractor receives a notice of non-payment from an owner, it must advise its subcontractors of the receipt of that notice, without delay. It also bears repeating that all references to days are to calendar days, not business days.
Unlike the Construction Act of Ontario, which contains general provisions regarding how notices may be given under that legislation, the Regulations prescribe specific methods for serving the notice of non-payment at all levels of the construction pyramid using personal service, email, fax or registered mail.
Similar to the Ontario regime, if the contractor receives a notice of non-payment from the owner and subsequently issues a notice of non-payment to the subcontractor, the contractor must provide an undertaking to the subcontractor to refer the matter between the contractor and the owner to adjudication within 21 days after giving the notice to the subcontractor. This is a classic example of mandatory adjudication (discussed below) introduced by the new legislation.
Statutory adjudication is a new expedited payment-focused dispute resolution process to resolve disputes (including relating to notices of non-payment, proposed or executed change orders, or the proper valuation of services or materials under the contract), as well as failure or refusal to certify substantial performance, and any other matters to which the parties to the adjudication agree.
An adjudication will be subject to the adjudication procedures set out in the contract or subcontract, provided they comply with the requirements of the legislation. However, if there are no adjudication procedures in the contract or subcontract, or if such procedures are non-compliant with the requirements of the legislation, the procedures set out in the Act and Regulations will control. Our experience to date has seen many owners (particular repeat buyers of construction services) taking the opportunity to supplement and shape the base procedures to manage the rapid timelines contemplated by the legislation.
Similar to the ODACC in Ontario, the Saskatchewan Construction Dispute Resolution Office (SCDRO), a not-for-profit corporation, has been designated by the Minister to act as the official adjudication authority, which will train and regulate the adjudicators, as well as their fees in Saskatchewan. The SCDRO will work with the ADR Institute of Saskatchewan Inc. to provide trained, independent adjudicators for disputes under the process. It will be interesting to see whether the number, types, and size of matters that are referred to adjudication in Saskatchewan will parallel those in Ontario over the past two years.
What’s happening elsewhere in Canada?
Alberta is following closely, with its long-awaited announcement of February 25, 2022, that the Prompt Payment and Adjudication Regulations, along with related changes to its Builders’ Lien Act, will come into force on August 29, 2022.
Many other provinces, as well as the federal government, have legislation or initiatives in the works, as described in our Canadian Prompt Payment and Construction Law Reforms page.
How can we help?
Overall, industry participants with multi-provincial or federal practices are starting to reach a tipping point in their familiarity with the new prompt payment and adjudication regimes and are preparing their contracts accordingly.
Given Osler’s extensive experience in Ontario, we have developed various service offerings to smooth the transition process for our clients across Canada, including transition provision analysis and training, cost-effective construction contract review services, a wide range of adjudication support services, best practices training and customizing organizational playbooks to reflect new and streamlined internal and external processes.