The Saskatchewan government recently passed legislation creating a “prompt payment” regime for construction projects. This article describes the most important parts of this new regime.
As of the date of publication the prompt payment legislation has not yet come into effect; according to the Saskatchewan government it will likely come into effect in early 2021.
Note on Terminology
The legislation uses the term “contractor” and “subcontractor” in a way that does not entirely match how those terms are used in the industry. A contractor is defined as any company or person hired directly by an owner. A subcontractor is defined as any company or person that provides services or materials to a contractor or another subcontractor. A person employed for wages is not a contractor or subcontractor.
The legislation requires that an owner pay a contractor within 28 days of receiving a “proper invoice” from them. A proper invoice is one that includes the information prescribed by the legislation, such as a reference to the relevant contract or other authority (e.g. purchase order) under which the services or materials were supplied and certain contact information for the person to whom payment is to be sent. The legislation contemplates that contractors will send owners proper invoices monthly, but the contract can specify a different schedule.
Once the owner pays the contractor, the contractor has seven days to pay all subcontractors and suppliers whose services or materials were included in the invoice the owner paid. The legislation does not require that a subcontractor submit proper invoices monthly, but contractors may include such a requirement in their subcontracts.
If the owner disputes the amount payable under an invoice, they must give the contractor a “notice of non-payment”. Contractors and subcontractors can also dispute invoices from subcontractors and suppliers using notices of non-payment. There are timelines, forms, and other requirements for delivering notices of non-payment in the legislation.
The legislation establishes a procedure called “adjudication”, a quick way of getting an interim decision on a dispute. Adjudication is available for disputes about invoices for which a notice of non-payment has been issued, other payment-related disputes, disputes about the failure or refusal to issue a certificate of substantial performance, and anything else the parties agree to address.
Adjudication is intended to be used before the contract or subcontract in question is completed, but the parties can agree to adjudicate after completion. Each adjudication must address only one issue, unless the parties agree otherwise.
The decision-maker is called the “adjudicator”. Adjudicators must have at least 10 years of experience in the construction industry and training provided by the “Adjudication Authority”.
In making his or her decision, the adjudicator can review documents provided by the parties, visit the construction site, and get assistance from an expert like an accountant or engineer. The adjudicator can also decide if they want any submissions or evidence from the parties other than the documents they provided.
The adjudicator must make their decision within 30 days of receiving documents from the party that referred the dispute to adjudication, but the parties can agree to extend the deadline.
An adjudicator’s decision binds the parties, but only until it is superseded by a decision made on that issue in court, in an arbitration, or an agreement between the parties. If an adjudicator decides that one of the parties must pay the other, that payment must be made within 10 days of the adjudicator’s decision being sent to the parties. If the payment is not made, the successful party can file the decision with the court and it can be enforced like a judgment.
The following entities are exempt from the prompt payment regime:
- Persons supplying “services or materials for any improvement with respect to a mine or mineral resource” other than oil and gas
- Architects, engineers, and land surveyors
- Persons supplying “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 prompt payment regime will change the practices and procedures surrounding payments and payment disputes in the Saskatchewan construction industry. Those involved in the industry should discuss the prompt payment regime with their legal counsel to learn how it will affect their business and what changes they should make. Also, when disputes arise, parties should obtain advice from legal counsel familiar with the adjudication process.
Caroline J. Smith and Collin K. Hirschfeld, QC
374 Third Avenue South