Prompt payment act could be coming
May 10, 2019
The federal Canada Prompt Payment Act (Bill S-224) has been passed by the Senate and awaits consideration by the House of Commons. Even if approved, Bill S-224 would only require timely payments to contractors under construction contracts with government institutions, not private firms.
In 2017, Ontario passed an amendment to its Construction Lien Act introducing a prompt payment system for private construction contracts. Manitoba is considering a similar system introduced as a private member’s bill earlier in 2018.
In the rest of the country, many subcontractors are subject to ‘pay when paid’ clauses, which means they are not paid until the general contractor is paid.
Such clauses in construction agreements are not always understood by subcontracting trades. Contractors often insert these clauses into agreements with subcontractors to avoid effectively financing the construction of a project when dealing with difficult owners who are slow to pay or have difficulty making payments. Subcontracting trades find such provisions unfair to them. They argue that, having completed their work without default, they are not paid due to matters outside of their control.
British Columbia has debated but not yet introduced prompt payment legislation, but contractors’ associations are hopeful the Ontario model will serve as a framework for the rest of the provinces to adopt in the near future.
Prompt payment legislation has been implemented in some form in many other common law jurisdictions including the U.S., the United Kingdom, Australia and New Zealand.
“Despite the generally unfavourable views of the courts on these clauses, a carefully worded ‘pay-when-paid’ clause would likely be enforced,” according to a recent construction bulletin from the Vancouver-based law firm of Clark Wilson.