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N.B. Construction Prompt Payment and Adjudication Act: 3 FAQs

Published:

April 2, 2024

Author(s):

• Andrew Kinley
• Parker Menzies

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Canadian provinces and territories continue to swiftly legislate prompt payment requirements – though not all are taking effect quite so swiftly. New Brunswick is the latest Atlantic Canadian province to pass prompt payment legislation – but New Brunswick’s Construction Prompt Payment and Adjudication Act still isn’t in effect. To help you prepare to comply with the Construction Prompt Payment and Adjudication Act, here are the answers to three frequently asked questions.      

1. What’s prompt payment legislation? 

Prompt payment legislation typically establishes mandatory time periods for issuing, disputing and paying invoices and creates a specialized scheme to adjudicate disputes over non-payment and the amount of payment. Generally speaking, the objectives of prompt payment legislation are to:

Alleviate Payment Delays. One of the objectives is to alleviate payment delays throughout the construction pyramid.  This means that if you’re a contractor, subcontractor or sub-subcontractor or supplier, you should get paid faster. On the other side of the coin, if you’re an owner you’ll be required to pay your contractors more promptly. Practically, however, the Act could create significant cashflow implications for owners.

Alleviate Project Delays. Another objective is to avoid or minimize project delays caused by payment disputes. Interim adjudication can assist contractors and others down the construction pyramid to get paid quicker without stopping work. However, there’s still some uncertainty about how “final” these interim adjudication decisions will be and who will decide these disputes. To date, only four Canadian jurisdictions have prompt payment legislation in force – but several others are working on it:

• In 2019, Ontario became the first Canadian jurisdiction to bring prompt payment legislation into force.

• In 2022, Saskatchewan and Alberta followed suit.

• In December 2023, the federal Prompt Payment for Construction Work Act took effect.

• Nova Scotia, Manitoba, Quebec (to a limited extent) and most recently New Brunswick have all passed – but not brought into force – prompt payment legislation.

The New Brunswick Construction Prompt Payment and Adjudication Act became law on June 16, 2023. However, the Act still hasn’t taken effect and there’s no word on when it will. The Regulations under the Act will likely play a major role in New Brunswick’s prompt payment regime but also haven’t yet been released and might only be when the Act takes effect.

2. What are the key features of New Brunswick’s prompt payment legislation?

The Act, like Nova Scotia’s prompt payment legislation, generally mirrors Ontario’s prompt payment legislation.

Application. The Act applies to almost every public (i.e., government) and private construction contract, except if exempted by regulation, and at all levels of the construction pyramid. Parties can’t contract out of the Act where it applies. 

“Proper Invoice”. The receipt of a “proper invoice” triggers the Act’s time limits so it’s critical for all members of the construction pyramid to understand what qualifies as a “proper invoice”. The Act defines a “proper invoice” as a written bill or other request for payment for services or materials for an improvement under a contract that contains:

• The contractor’s name and address.
• The invoice date.
• The amount payable for the services or materials that were supplied and the payment terms. The amount of the proper invoices remains subject to normal holdback requirements under New Brunswick’s Construction Remedies Act.
• The date or the period during which the services or materials were supplied.
• A description, including quantity if appropriate, of the services or materials that were supplied.
• The authority under which the services or materials were supplied, whether in the contract or otherwise.
• The name, title, telephone number and email and mailing addresses of the person to whom payment is to be sent.
• Any other information prescribed by the Regulations (which haven’t yet been released).

Unless otherwise specified in the contract, “proper invoices” must be issued monthly and cannot be conditional on the prior certification of a payment certifier. However, a party can revise a proper invoice after issuing it if the owner agrees in advance, the invoice date hasn’t changed and the invoice meets all other requirements for a “proper invoice”.

Time Period for Payment & Dispute. The Act also set out the time periods in which members of the construction pyramid must make payment:

• Owner. The owner has 28 days from receipt of a proper invoice to pay the contractor, including to pay any amounts not in dispute in the notice of non-payment.

• Disputes. The owner has 14 days from receipt of a proper invoice to dispute all or part of the invoice by issuing a “notice of non-payment”. The Act or the Regulations (which haven’t yet been released) will set out the form for the “notice of non-payment, which will require the disputed amount(s) and reason(s) for the dispute.
   
• Contractor. The contractor has 7 days from the date it receives payment of the proper invoice from the owner to pay subcontractor(s) whose work formed part of the of proper invoice. Upon a subcontractor’s request, the contractor must give a subcontractor information about payment due dates, payment receipt dates and proper invoice dates from a contractor and/or another subcontractor from which it’s entitled to receive payment. A contractor can make partial payments to subcontractors if the contractor wasn’t paid because it received a notice of non-payment from the owner disputing the proper invoice. However, the contractor must pay its subcontractors the balance of any unpaid amount due to it within 35 days of the date of the proper invoice unless it issues a notice of non-payment to the subcontractor. This means a contractor might have to pay its subcontractors even if the owner hasn’t paid the contractor.

• Subcontractor. The subcontractor has 7 days from the date it receives payment from the contractor to pay its sub-subcontractor(s) and supplier(s).

Interest. Interest accrues and is payable on amounts not paid within the mandated time periods at the rate the Regulations (which aren’t yet issued) or a higher rate to which the parties agreed to in their contract. 

Employees. An employer (a contractor, subcontractor, or sub-subcontractor/supplier) must still pay its employees even if there’s a disruption in payment down the construction pyramid.

Interim Adjudication. Interim adjudication is intended to resolve payment disputes in a quick and relatively informal manner without impacting or holding up construction projects.

• Referral to Adjudication. A party can refer “a dispute with respect to payment”, including non-payment, the amount of payment, change orders (accepted and non-accepted), proposed change orders and the valuation of services or materials, under the contract or subcontract to interim adjudication under the Act. However, the referral must occur before the contract or subcontract is completed unless the parties agree otherwise. Further, a party can still refer a dispute to adjudication even if the matter is the subject of a court or arbitration proceeding unless that proceeding has finally determined the dispute.

• Court or Arbitration Proceedings. The adjudicator’s decision will be binding on the parties until the project is substantially performed, but not final. It looks like a party will still be able to commence court or arbitration proceedings even after an adjudicator has made their decision unless a court or arbitration has already decided the issues in dispute. The Act also allows a party to ask a court to judicially review (a process by which a court doesn’t rehear the dispute but reviews the decision for correctness or reasonableness, depending on the nature of the question) an adjudicator’s decision.

• Costs. The parties bear their own costs for interim adjudication.

Beyond this, we don’t know exactly what the interim adjudication regime will look like – or who the adjudicators will be. This appears to be the stumbling block to bringing the Act into force. It’s likely the regime will resemble private domestic arbitration (albeit less informal) but potentially with government-appointed adjudicators deciding the disputes. However, no adjudicators have yet been appointed and there’s still some uncertainty who they will be.

Ontario. In Ontario:

• Responsibility for dispute adjudication is assigned to a separate department.

• The parties can either select an adjudicator from an approved Ontario Dispute Adjudication for Construction Contracts (ODACC) list or ask ODACC to appoint an adjudicator.

• The adjudicator sets the process and outlines the submissions they require within five days of being appointed and must provide a decision within 30 days of the completion of the claimant’s submissions unless the parties agree to an extended deadline.

New Brunswick. There are several options for New Brunswick but it remains to be seen which one (or even a combination of them) the Province will pursue – and when:

• Government Adjudicators “on staff”, as in Ontario.
• Existing Small Claims Adjudicators.
• Superior Court Judges of the Court of King’s Bench.
• Private Practice Lawyers, either on an ad hoc basis or by building an approved “list”.
• Industry Members, either on an ad hoc basis or by building an approved “list”.

Payment & Enforcement. A party ordered to pay must do so within the time set out in the Regulations (which, again, haven’t yet been released). Interest will accrue on these amounts. If they aren’t paid, the contractor or subcontractor can suspend further work under the contract or subcontract until the amount is paid and doing so doesn’t constitute a breach of contact. A party can file the adjudicator’s determination with the court and enforce it as a court order. It’s expected the Regulations will set out the relevant timelines.

3. How can I plan for New Brunswick’s prompt payment legislation?

The Act and implementation of a prompt payment regime will significantly impact all members of the construction pyramid. The Ontario legislation has clear transition rules stating that any procurement processes or contracts entered before prompt payment legislation took effect are not subject to the requirements. The proposed Nova Scotia legislation has no such wording, though it does state the Regulations may exempt certain construction contracts or classes of construction contracts from the new requirements. Similarly, the New Brunswick Act is clear it applies to all contracts entered after the date the Act takes effect, but the Regulations could exempt some contracts. In the meantime, in addition to keeping an ear to the ground for the Act to take effect, owners and contractors can start planning now for the possibility the new requirements will apply contracts entered after they take effect. Here are three tools to help owners and contractors plan for their 2020 construction projects with the procedures in place to take full advantage of, and ensure compliance with, the new legislation.

Renovate Your Invoice. Update your standard form invoices now to ensure they include all the information necessary to constitute a “proper invoice” under the Act. This is essential to position yourself to comply with and take advantage of the new prompt payment provisions. It will also be important to ensure you issue your invoices when the Regulations require, when that information is available.

Build Your Administrative & Record-Keeping Processes. Review your administrative and record-keeping processes to ensure you’ll be positioned to both comply with and take advantage of the prompt payment provisions of the Act. Consider:

• Assigning one person to issue or to receive invoices in accordance with a standardized process.

• Setting up a system to keep meticulous records of both the dates on which invoices are issued and received will be crucial to ensure you don’t miss an opportunity to dispute an invoice or by failing to send the notice of non-payment in time. An automated system to enter the deadlines for sending notice of non-payment alongside the invoice date will be of assistance.

• Where there’s a payment certifier involved, ensuring they’re aware of the increased timelines once in effect and that they’re prepared to review invoices and certify payments with enough time for the owner to send notice of non-payment if necessary.

Review Your Contract Terms. You can’t contract out of the new Act. That means “paid when paid clauses” (agreements saying “we’ll pay you when we get paid”) won’t likely be enforceable when the Act takes effect. You can also consider setting a specific interest rate in your contracts.

Please contact your McInnes Cooper lawyer or any member of our Construction & Property Development Team @ McInnes Cooper for help preparing for New Brunswick’s prompt payment legislation.

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