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  • Prompt Payment for Your Business

    May 6, 2019

    Prompt Payment for Your Business


    Prompt payment has arrived in Saskatchewan, thanks to a unanimous vote in the Saskatchewan Legislative Assembly.

    So, what does this mean for your business?

    Well, the bill that was passed relies on a yet-to-be-developed regulatory framework administered by an Authority that has not yet been formally appointed. So, there is no immediate impact.

    But the law will have a significant impact on how you can operate your business in the months and years ahead. It will provide contractors with tools to communicate clearly with owners about their payment cycles and manage relationships when payments are not forthcoming.

    How Prompt Payment Works

    Once the regulations and governing bodies are established, prompt payment will require all contract-based construction work in Saskatchewan to have an invoicing cycle in the contract. If they do not, a default invoicing cycle of “monthly” will apply.

    In each invoicing cycle – whether it’s monthly, 45 days, 60 days – the general contractor will provide the owner with a proper invoice. A proper invoice differs from a regular invoice or a subcontractor to general contractor invoice in that it is part of the prime contract schedule. A proper invoice cannot be contingent on any prior approval or certification from the owner or their representatives.

    General contractors will need to manage their subs and all invoice timing accordingly, in order to ensure that all applicable work eligible to be included in the proper invoice is included. The proper invoice starts the prompt payment clock. From the date of proper invoice, an owner has 28 days to pay the proper invoice.

    Once a general contractor has been paid on a proper invoice, they have 7 days to pay their subcontractors. Those subcontractors then have 7 days to pay their subcontractors and suppliers. This 7-day cycle cascades down the supply chain until all parties are paid. If you have lien rights on a project, prompt payment rights apply to you as well.

    If an owner contests any part of a proper invoice they must file a notice of dispute with the general contractor within 14 days of the proper invoice date. Any notice of dispute must include what is being contested and why. The remaining portion of the proper invoice remains due at the 28-day deadline.

    So, for example, if an owner is contesting $25,000 worth of lighting on a $100,000 proper invoice, the remaining $75,000 of the invoice is still due at 28 days and the dispute will not impact the mechanical, electrical, drywall, glazing, or other trade-scope work included on the invoice. This limits the scope of disputes and keeps projects moving by ensuring all satisfactory work is paid, despite other concerns or disputes.

    Adjudication

    When a dispute does arise, the process to address it should always be to discuss the problem and negotiate a solution all parties can agree to. However, when this cannot be achieved, prompt payment provides a timeline and process to bring in a neutral third-party to adjudicate the matter.

    Adjudicators will need to be part of a prescribed list and owners and contractors will have the opportunity to jointly select an adjudicator where possible. Adjudicators cannot be pre-selected or prescribed in the contract.

    If parties to an adjudication cannot agree on an adjudicator, the Authority – the body that will manage the process – will appoint an adjudicator for them.

    When an owner files a notice of dispute, a general contractor will have until the 28-day deadline to file for adjudication. If they fail to do so, they must either pay the affected subtrade(s) or the affected subtrade(s) can file for adjudication against the general contractor at the 7-day mark when they were entitled to payment under prompt payment timeline provisions.

    This gives a 3-week window from notice of dispute until someone is likely filing an adjudication. This gives general and trade contractors – and, frankly, owners – a lot more incentive to talk than they have today. It also gives contractors throughout the supply chain more reason to communicate clearly at every phase of the project and invoicing process.

    Now, once an adjudication is under way, all parties will have 5 days to submit their claim paperwork and opinions to the adjudicator. The adjudicator may accept further paperwork after that 5-day window – but they are not required to do so. Nor will adjudicators do their work in the dark, so to speak. If an adjudicator has questions, they will call. If an adjudicator needs an expert opinion, they will enlist an expert for advice and bill that as part of their services.

    The cost of adjudication will be assigned equally to the parties to the adjudication. However, if an adjudicator feels that one party acted in bad faith, they may assign some greater portion – all the way up to 100% - of the cost to the offending party. Adjudicators have broad discretion in billing and other matters.

    Once the 5-day period to supply paperwork has elapsed, an adjudicator will have 30 days to provide a ruling. Extensions are possible, if both parties and the adjudicator agree.

    Once an adjudicator has delivered a ruling, any money owing must be paid within 10 days. Failure to pay will enable contractors to both (1) take the ruling to a court to compel payment, and (2) leave the job site without penalty. The contractor cannot be replaced, and the non-paying party will be responsible for reasonable costs of de-mobilization and remobilization.

    Our hope and expectation is that vanishingly few situations would ever get that far. Prompt payment is far more likely to change behavior by changing the processes of construction contracting and the advice owners receive.

    In any case, if one does the math (28+5+30+10), it is a minimum of 73 days before any contractor is leaving a jobsite due to persistent delay in payment. What the process does do is enable contractors to take some action immediately and, hopefully, keep conversations and projects moving while differences are worked out.

    Conclusion

    Now, I need to be clear, that everything I know today is subject to change – but the system overall will somewhat resemble what I’ve laid out here. That means it will not ensure payment – you still need to manage your business. It also means you will need to be more diligent than many contractors are today about contract management.

    But in the end, prompt payment will provide even small contractors with the ability to contest delayed payments to a neutral third-party for a binding, enforceable ruling without the full cost of legal action or the lengthy years-long delays that are typical when courts are involved.


    John Lax

    Director of Advocacy and Communications
    Saskatchewan Construction Association

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