Prompt Payment Rules for Federal Construction

Summary#

These are the final Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances). They add details to the Federal Prompt Payment for Construction Work Act about when provincial laws count as equivalent, which days don’t count toward payment or adjudication deadlines, how interest on late payments is calculated, and when an adjudicator can decline a case. The Regulations were registered on December 8, 2023 and come into force when section 387 of the Budget Implementation Act, 2019 comes into force (or on the day they are registered if that day is later).

What it does#

• Defines the test for a province to be treated as having a “reasonably similar” prompt payment and adjudication regime. To qualify, provincial law must require:

  • submission of an invoice that is reasonably like a federal “proper invoice”;
  • payment down the contracting chain within time limits similar to the federal ones;
  • a written notice when payment is not made; and
  • an adjudication process with similar timing and a decision that is binding unless set aside by court or arbitration or replaced by a written agreement.

• Lists days and periods that are not counted when calculating payment or adjudication deadlines:

  • federal holidays as defined in the Interpretation Act;
  • Saturdays;
  • the nine-day period December 24 to January 1 (inclusive);
  • any construction holiday recognized by a provincial government.

• Sets how interest on unpaid amounts is calculated:

  • simple interest equal to the “average bank rate” plus 3% per year, charged from the payment due date until payment is received.
  • “Average bank rate” is the simple mean of the Bank of Canada bank rates set during the month before the month for which interest is being calculated.

• Specifies situations where an adjudicator does not have to decide a dispute:

  • the dispute has been consolidated with another and a different adjudicator was chosen;
  • the adjudicator’s appointment is revoked by agreement of the parties;
  • the adjudicator has a conflict of interest; or
  • the Adjudicator Authority is satisfied the adjudicator can no longer handle the dispute.

Who's affected#

• Contractors and subcontractors working on federal construction projects on federal property.
• Small and medium-sized construction firms (the Regulations and Act were designed with these firms in mind).
• Provinces that already have their own prompt payment laws; if a province meets the test it can be designated so its rules apply instead of the federal rules in that province. Examples discussed in the background include Ontario, Saskatchewan, and Alberta.
• The federal purchasing department, Public Works and Government Services Canada (PWGSC), and the appointed Adjudicator Authority, which run parts of the system and maintain the roster of adjudicators.

Why it matters#

• Payment timing and quick dispute resolution affect cash flow for construction firms. The Regulations aim to make payments flow faster down the chain so smaller firms are not left waiting.
• Interest is clearer: late payments will accrue simple interest at the Bank of Canada’s average bank rate plus 3%, which gives businesses a predictable penalty for late payers.
• Some common non-working days (Saturdays, holidays, the end-of-year break, and recognized construction holidays) won’t count toward tight deadlines. That can lengthen the practical time available to respond or start adjudication.
• Faster, cheaper adjudication is intended to reduce reliance on slow and costly court cases. The federal government says the construction sector makes up about 7.5% of Canada’s GDP and employs roughly 1.4 million people, and that delayed payments have been a long-standing problem (a 2015 industry survey cited about $46 billion in late payments). The Regulations are meant to address those problems on federal projects.