Prompt Payment Rules for Federal Construction

Summary#

The government published proposed Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances) on February 25, 2023. The rules explain key details of the Federal Prompt Payment for Construction Work Act, including how provinces can be treated as equivalent, which days don’t count toward payment deadlines, how interest on late payments is calculated, and when an adjudicator can step aside. Comments were invited for 30 days after publication.

What it does#

• Defines the test for a province to be treated as having an equivalent prompt-pay law. The proposal cites examples such as Ontario, Saskatchewan and Alberta.
• Lists which days are excluded when counting time limits for adjudication:
  • holidays as defined in the Interpretation Act,
  • Saturdays,
  • the nine-day period from December 24 to January 1,
  • any construction holiday recognized by a province.
• Sets how interest on unpaid amounts is calculated:
  • simple interest equal to the average bank rate plus 3% per year,
  • interest runs from the due date until payment is received,
  • “average bank rate” is defined using rates from the month before the month being charged.
  • The definition refers to the Bank of Canada rate.
• Lists when an adjudicator does not have to decide a dispute:
  • the dispute was consolidated and another adjudicator was appointed,
  • the adjudicator’s appointment was revoked by agreement of all parties,
  • the adjudicator has a conflict of interest,
  • the Adjudicator Authority is satisfied the adjudicator can no longer deal with the dispute.
• Says the regulations come into force when the specified part of the Budget Implementation Act, 2019 comes into force (or on the day they are registered if later).

Who's affected#

• Contractors and subcontractors working on federal construction projects on federal property.
• Small and medium construction firms in particular. The source notes the construction industry employs about 1.5 million people and that over 99% of firms are small or medium; 61% of construction firms have 4 employees or less.
• The federal procurement office, Public Services and Procurement Canada, which will set up the adjudication arrangements and a national list of adjudicators.
• Provinces that may seek designation because they already have their own prompt-pay laws. It is not yet decided which provinces will be designated.

Why it matters#

• It aims to make payments move faster down the contracting chain, reducing cash-flow problems for subcontractors and smaller firms.
• Faster, simpler adjudication is intended to be cheaper and quicker than going to court to chase unpaid invoices.
• The interest and excluded-days rules give clearer, predictable calculations for late payment charges and deadlines.
• This is a proposed regulation, not final law. The government asked for public comments for 30 days after publication on February 25, 2023, and details could change before the rules come into force.