Federal government moves forward with its own prompt payment legislation

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Ontario Construction News staff writer

The federal government is moving forward with legislation for construction industry prompt payment and adjudication for projects under its jurisdiction, with provisions similar to the Ontario Construction Act.

The legislation has been included as part of the government’s budget implementation bill and received second reading on April 30.  It is now at the committee stage in the House of Commons and Senate.

The portion of the bill relating to construction, Division 26, has been given the title: “Federal Prompt Payment for Construction Work Act”, and sets out payment cycle timelines and adjudication processes (including the set-up of an Authorized Nominating Authority) very similar to the Ontario Construction Act.

The federal legislation will apply for Government of Canada work across the country, and will be relevant for industries and activities under federal jurisdiction, though the boundaries between federal and provincial jurisdiction on non-public construction projects and P3 projects can be murky.

A major difference between the federal law, when it is implemented, and provincial legislation relates to transition provisions.

The Ontario legislation separated the transition process into two stages (the adjudication and prompt payment provisions only go into effect this October, 18 months after the general legislation went into effect on July 1, 2018), and set out grandfathering provisions for the old Construction Lien Act to apply for work either commenced or in procurement stages by the implementation date (with some additional provisions for leasehold rights.)

The federal law, on the other hand, sets a one-year time frame for implementation, but does not distinguish between new and existing contracts – in other words, a larger project may start under the old rules, but need to be completed under the prompt payment/adjudication provisions of the new federal legislation.

“The bill has some rather surprising transition provisions that contemplate a one-year deferral period, and do not provide for any grandfathering of existing contracts,” law firm Osler writes in a paper, Prompt payment and adjudication for federal projects. “Therefore existing construction contracts executed prior to the enactment of the new legislation will be subject to the new legislation starting a year from its enactment.

“We anticipate disruption as existing contracts may be amended somewhere mid-performance to provide for contractural clarity and alignment on prompt payment and adjudication or risk the potential application of the legislation which will override the contract to the extent of conflicting terms. Having said that, the scope of the Bill is narrower than the Ontario Construction Act by only dealing with prompt payment and adjudication so the federal transition may be more targeted with specific surgical changes.”

It is also possible that the transition provisions may be amended after committee hearings and review.

The federal legislation will be relevant for federal government contracts, as well as for industries such as banking, nuclear and aeronautics. However, the report that led to the legislation recommended “further appropriate consultations before introducing a prompt payment or adjudication regime” for projects located on indigenous lands, Osler writes.

“The Bill also provides that cabinet may exempt designated provinces from application of certain provisions of the Bill, after taking into account payment and adjudication provisions under provincial laws,” Osler writes. “However, the application of provincial legislation to a federal construction project in the designated province will need to be considered.”

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