The Builders’ Liens Act (the “Act”) has not had any substantive changes in almost 40 years. Over that time, Manitoba’s construction industry has expanded and undergone significant changes.
Industry stakeholders have expressed concerns with the interpretation and obligations imposed by the Act. The Manitoba Law Reform Commission (the “Commission”), a public statutory body tasked with providing recommendations for the improvement, modernization and reforms of Manitoba’s laws, completed its extensive review of the Act and published its Final Report in November 2018.
The Final Report recommends modernization of the Act to become The Construction Contract Remedies Act, with the goal of making it more accessible and user-friendly, while also returning to the Act’s original purpose of providing payment protections for those within the “construction contract pyramid.” The Commission proposes that the Act accomplish this goal by, among other changes, adding two new protections: prompt payment provisions and an interim adjudication process.
Prompt payment legislation for the construction industry has been a hot topic across Canada for many years, with Manitoba sub-contractors requesting legislative intervention in this area since at least 2009. Ontario has enacted a prompt payment regime which will come into effect on October 1, 2019. Manitoba seeks to follow that lead and may seek to enact prompt payment legislation as recommended by the Commission’s Report.
The Commission recommends that, rather than enacting stand-alone prompt payment legislation, Manitoba should adopt the approach introduced by Ontario and instead incorporate prompt payment reforms into an updated Act. The Commission proposes that the prompt payment section of the Act be separated into seven main sections which address the following:
- Proper Invoice. This proposed section of an updated Act details the information that must be included to constitute a “proper” or adequate invoice that starts the clock on payment deadlines;
- Time for Giving Invoice. To strike a balance between freedom of contract and the establishment and enforcement of minimum standards, the Commission proposes that, unless the contract provides otherwise, invoices are to be given on a monthly basis.
- Deadlines for Payment. The Commission recommends that the following payment deadlines be adopted: the owner shall pay the contractor within 28 days of the submission of a proper invoice; the contractor shall pay the sub-contractor within 7 days of the date the contractor is paid by the owner; and a sub-contractor shall pay the sub-sub-contractor within 7 days of the date the sub-contractor is paid by the contractor. In other words, each party down the “pyramid” from the owner must make payments to its suppliers and subcontractors within 7 days of the date that it receives payment.
- Notice of Non-payment. The proposed updated Act would require an owner who disputes any part of a proper invoice to issue a written Notice of Non-Payment within 14 days of receiving the invoice, setting out the amount disputed with reasons. If the contractor intends to rely upon the owners’ Notice of Non-payment to withhold payment from sub-contractors, the contractor is then required to provide written notice of its intention to not pay sub-contractor amounts claimed as due. This requirement applies to all those down the payment chain.
- Contractor Response to Non-payment Notice. If a contractor has advised sub-contractors of the owners’ Notice of Non-payment and within 21 days seeks adjudication of the issue, the contractor’s payment obligations with respect to the disputed amounts are suspended until determination of the matter. A contractor who does not provide notice of an owners’ Notice of Non-payment is required to fully pay its sub-contractors within the usual prompt payment timelines.
- Rules for Distribution of Partial Payments. If a contractor receives only partial payment of the amount owed to it under a proper invoice, the Commission recommends that the legislation require the contractor to pay each subcontractor from the amount received for amounts properly invoiced. If the payer has not made it clear who is considered at fault for the payment deduction, the Ontario rules require that the partial payment is to be distributed
- Interest on Payments Delayed. The Commission recommends that the Act impose an interest rate, but that the parties should have the ability to agree to a different interest rate in the contract.
The Commission has also recommended that Manitoba create a private adjudication system with regulatory oversight to determine payment disputes similar to the one that will come into effect in Ontario on October 1, 2019. Key features of the proposed interim adjudication process would include that:
- Parties to a contract or subcontract may refer a dispute to adjudication prior to completion of the contract or subcontract;
- The nature of the dispute may involve a range of issues including disputes that are the subject of the Notice of Non-payment, set-offs, liens and holdbacks;
- The timelines for the adjudications are to be very short;
- To be included on a registry, an adjudicator must meet certain requirements and have completed certain training;
- The adjudicator will have the authority to issue directions, and make binding determinations.
Because Manitoba’s industry is smaller than Ontario’s, the Commission suggests that Manitoba consider seeking opportunities to partner with other provinces or the federal government to ensure an adequate number of adjudicators are available.
It should be noted that the prompt payment provisions and the interim adjudication process are only two components of the Commission’s non-binding recommendations for the government. Although the Manitoba government is not bound to accept any or all of the Commission’s recommendations, it appears likely that the Manitoba construction industry will see a major reform in the Act in the near future.
This article first appeared in Build Manitoba, a publication of the Winnipeg Construction Association.