New Brunswick introduces prompt payment and adjudication legislation
By Conor O’Neil and Maria Cummings
On May 9, 2023, two bills were introduced in the New Brunswick Legislature that could have material affects on the construction industry. Bills 41 and 42, of the current session, if passed, would amend the Construction Remedies Act, and introduce a new companion act which would establish mandatory prompt payment and adjudication for construction projects. As of the writing of this article, both bills are working through the legislature and will not become law unless passed in this session.
Bill 41, an Act respecting holdback trust accounts
Bill 41, if passed, will amend the Construction Remedies Act to repeal the requirement for an owner to maintain a holdback trust account for each improvement with a joint trustee. The requirement to maintain holdback by an owner will remain but the practical effect will be to return to the practice under the historical Mechanics’ Lien Act whereby an owner is not required to deposit the holdback into a separate trust account.
Bill 42, Construction Prompt Payment and Adjudication Act
Bill 42, if passed, will introduce a completely new act, the Construction Prompt Payment and Adjudication Act (the “Act”). The application of the Act is defined almost identically to the Construction Remedies Act. In other words, it will apply to almost any construction contract, although there is potentially broad authority to exempt certain classes of improvements, persons or contracts in the regulations. Its effect will be to introduce a new regime including prompt payment and adjudication.
Prompt payment legislation is aimed at the perception of systemic slow or non-payment in the construction industry. The first Canadian prompt payment bill was introduced in Ontario in 2017. Since then prompt payment and adjudication legislation has been considered in a majority of provinces, and federally, many of which have introduced and passed their own bills, although it is not in force in every jurisdiction in which a bill has been introduced.
The prompt payment portion of the Act prescribes time periods in which payment must flow through the construction pyramid. After the delivery of a “proper invoice” by a contractor to an owner, the owner has 28 days in which it must pay the proper invoice. The owner may dispute the proper invoice by issuing a notice of non-payment within 14 days of receipt of the proper invoice. Even if a notice of non-payment is issued, the owner must pay the undisputed portion of the proper invoice within the same 28-day window.
The time period for payment cascades down the construction pyramid through direct contracting parties. For example, upon receipt of payment on the 28th day by the contractor, that contractor then has 7 days in which to provide payment to its subcontractor(s) (i.e. by day 35). Similarly, upon receipt of payment by a subcontractor it must pay its sub-subcontractors or suppliers within 7 days (i.e. by day 42).
Adjudication provides the teeth to enforce prompt payment. A common criticism of traditional dispute resolution processes, like litigation or arbitration, is that they are too slow and disputes choke off the cash flow necessary for projects to continue on to completion. Adjudication provides a new option that has been described as an interim-binding dispute resolution.
The Act provides that much of the actual process for adjudication will be set out in the regulations, or by the adjudicator nominating authority. However, in other jurisdictions the intent has been that where there is a dispute as to payment that dispute may be referred to a third-party adjudicator and a decision on the dispute may be rendered in as little as 39 to 60 days. The concept is that the decision of the adjudicator is only binding on the parties to a dispute until the project is substantially performed. In theory, this increases cash flow and provides an interim mechanism for the parties to complete the project. Parties that are unhappy with the result of an adjudication are free to litigate or arbitrate after the fact.
Other provinces have taken varied approaches to the appointment of an adjudicator nominating authority and the training and certification of adjudicators. The regime as a whole has been met with mixed reviews on its success. Prompt payment and adjudication is still in its infancy across Canada and it remains to be seen how this could be effectively implemented in New Brunswick.
This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the authors.
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