Order Designating Provinces Under Subsection 6(1) of the Federal Prompt Payment for Construction Work Act: SOR/2023-270

Canada Gazette, Part II, Volume 157, Number 26

Registration
SOR/2023-270 December 8, 2023

FEDERAL PROMPT PAYMENT FOR CONSTRUCTION WORK ACT

P.C. 2023-1218 December 8, 2023

Whereas, under subsection 6(1) of the Federal Prompt Payment for Construction Work Act footnote a, the Governor in Council is of the opinion, taking into account the criteria set out in section 2 of the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances), that the designated provinces have, by or under their laws, enacted.

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Public Works and Government Services, under subsection 6(1) of the Federal Prompt Payment for Construction Work Act footnote a, makes the annexed Order Designating Provinces Under Subsection 6(1) of the Federal Prompt Payment for Construction Work Act.

Order Designating Provinces Under Subsection 6(1) of the Federal Prompt Payment for Construction Work Act

Designated provinces

1 The following provinces are the designated provinces under subsection 6(1) of the Federal Prompt Payment for Construction Work Act:

Coming into force

2 This Order comes into force on the day on which section 387 of the Budget Implementation Act, 2019, No. 1, chapter 29 of the Statutes of Canada, 2019, comes into force, but if it is registered after that day, it comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

While federal property and anything that is integral to the property or the creation of that property is within federal jurisdiction, legislation dealing with contractual relations (in particular, contractual relations among non-federal government parties such as a contractor and its subcontractors) would normally be considered as falling within exclusive provincial legislative jurisdiction in relation to property and civil rights in the province.

With the provinces of Ontario, Saskatchewan and Alberta bringing their own prompt payment legislation into force and others like Nova Scotia and Manitoba taking steps to follow suit, there was a potential for interaction between the federal and provincial prompt payment legislations along the construction chain of contractors, subcontractors and sub-subcontractors.

If federal and provincial laws are in conflict, a constitutional tool called “doctrine of paramountcy” helps resolve the conflict by holding that the federal law prevails. This doctrine would govern in the event that there is prompt payment legislation in effect in the province in which a federal construction project on federal lands subject to federal prompt payment legislation.

Where both federal and provincial prompt payment regimes are in place, there is a risk that members of the construction industry will not understand the protections available to them unless one regime is clearly identified as the one that applies.

The approach to designate provinces legally allows them to apply their own prompt payment legislation while promoting alignment of prompt payment legislation across Canada, since the designation requires provincial legislation to be reasonably similar to the federal legislation, based on the criteria established in the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances). There are currently three provincial prompt payment regimes in force and all three have qualified to be designated, namely: Ontario (Bill 142, Construction Lien Amendment Act, 2019), Alberta (Prompt Payment and Construction Lien Act of 2022) and Saskatchewan [The Builders’ Lien (Prompt Payment) Amendment Act, 2022].

Background

The construction industry in Canada is a significant employer and driver of the Canadian economy. Approximately 7.5% of Canada’s gross domestic product is related to construction, and the industry employs an estimated 1.4 million people.

In 2016, at the 50th annual joint meeting of the Canadian Construction Association and the federal government, industry stakeholders raised the long-standing issue of payment delays along the contracting chain of contractors to subcontractors for federal construction contracts. A 2015 survey available from the Canadian Construction Association indicated that approximately $46 billion in payments remained unpaid after the conventional 30-day period, which represented about 16% of the estimated $285 billion in construction contracts in Canada that year.

Prompt payment initiatives within Canada have progressed significantly over the last five years; the provinces of Ontario, Saskatchewan, and Alberta have advanced legislation while other jurisdictions continue to explore potential prompt payment measures. Industry organizations across Canada have expressed interest in achieving national consistency where possible, acknowledging that legislation related to property and civil rights typically falls within provincial and territorial jurisdiction.

In 2017, the Prime Minister mandated the Minister of Public Works and Government Services Canada (PWGSC) to modernize practices to ensure the prompt payment of contractors and subcontractors that do business with the Government. To consider this issue, a government-industry working group was established, composed of PWGSC, Defence Construction Canada and the Canadian Construction Association. The working group was established to consider ways to improve the speed of payment on federal construction jobs. In 2018, a 14-point action plan was developed, which included a recommendation to develop legislation as a key action item. The legislation was deemed essential to ensure appropriate promptness of payment through all levels of the construction supply chain. The Order respond to that recommendation.

The Federal Prompt Payment for Construction Work Act (the Act) was developed and received royal assent on June 21, 2019. It stipulates that payment will be due from the federal government 28 days after receipt of a proper invoice from the contractor. The contractor will then have seven days to pay its subcontractors, and those subcontractors will then have seven days to pay their subcontractors, and so on down the chain. If there is a dispute between parties working on the construction project related to payment anywhere down the chain of payment, the Act introduces an adjudication process. Adjudication is a pragmatic, swift, and flexible dispute resolution mechanism.

To ensure greater consistency and ease to construction firms in the province or territory where a reasonably similar prompt payment regime exists, the legislation allows provincial/territorial prompt payment legislation (where it exists) to be applicable instead of the federal legislation as long as they meet the criteria set out in the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances).

At this time, Ontario, Saskatchewan and Alberta are the only provinces with a fully implemented prompt payment regime. Based on the criteria set out in the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances). These three provinces’ regimes qualify and are designated so that any prompt payment pursuit on federal properties in these provinces fall under their provincial prompt payment regimes.

Objective

This Order Designating Provinces is designed to enable legislative consistency across the country for the construction industry. Designating provincial regimes as equivalent to the federal regime, as long as they meet the criteria set out in the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances), is expected to reduce uncertainty and provide increased stability since the members of the construction industry as a whole would better understand the protections available to them.

Description

This Order designates the following provinces, taking into account the criteria set out in section 2 of the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances), as having enacted a reasonably similar regime for payment of contractors and subcontractors, and a reasonably similar adjudication regime in case of non-payment:

Regulatory development

Consultation

In 2018, the Department engaged expert consultants to conduct a series of stakeholder engagement sessions and develop a recommendation package for the federal government regarding promptness of payment and adjudication in relation to federal construction projects. They conducted 55 engagement sessions and met with more than 500 stakeholders from every province and all territories.

Given the multiple prompt payment initiatives underway at the provincial level, there was concern that different approaches could be implemented in various jurisdictions and that the resulting inconsistencies would not serve the industry well, an issue that the expert consultants had identified as having affected other countries, most recently Australia.

Developing legislation that was aligned across the country, to the extent possible, was deemed important from a policy perspective. Given that legislative alignment touches on constitutional principles, experts in constitutional law were also consulted. The designation of provinces was considered the best approach, since the process is relatively straight forward. Designating provinces promotes alignment by establishing specific criteria for the designation and finally because there was already interest in the provinces being able to apply their own prompt payment legislation.

The Federal Prompt Payment for Construction Work Regulations (Dispute Resolution) and the Federal Prompt Payment for Construction Work Act Regulations (Criteria, Time Limits, Interest and Circumstances), which outlines the criteria for the designation of provinces, were prepublished in the Canada Gazette on February 24, 2023, for a 30-day public consultation period. No comments or concerns were received pertaining to the criteria for designation.

Given that the Order is to designate, in accordance with the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances), the provincial/territorial prompt payment legislation to be applied instead of the federal legislation, it is recommended that this Order be exempt from prepublication.

Modern treaty obligations and Indigenous engagement and consultation

PWGSC conducted an assessment to determine the implications of the legislation and resulting regulations on modern treaties. As the Act and proposed Regulations deal with prompt payment for the delivery of federal construction projects on federal lands only when the contracting authority is a federal department or agency, the proposed Regulations have no implications on modern treaties.

Instrument choice

The Act establishes that the Governor in Council may, by order, designate any province that has enacted a reasonably similar prompt payment regime. Each time a new province qualifies to be designated, adjustments can be more readily made to an order compared to legislation.

Regulatory analysis

Benefits and costs

The Order would not create additional costs to industry as it simply defines which provinces will be designated so that their own prompt payment legislation would apply instead of the federal prompt payment legislation.

Small business lens

The designation of provinces based on the criteria set out in the Federal Prompt Payment for Construction Work Act Regulations (Criteria, Time Limits, Interest and Circumstances) will benefit small businesses by allowing them to apply the provincial prompt payment legislation to all construction contracts instead of having to apply federal legislation for some contracts and provincial legislation for others.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in the administrative burden on business.

The Order designates which provincial prompt payment legislation would apply instead of the federal prompt payment legislation, ensuring consistency across jurisdictions in Canada under which construction businesses operate. This would not directly result in an increase in the administrative burden on business as defined by the Red Tape Reduction Act.

Regulatory cooperation and alignment

Engagement continues through provincial and territorial meetings focused on the administration of real property. Direct engagement with provincial and territorial officials is ongoing, to ensure information sharing (both related to legislative measures, but also for other contractual/administrative measures that may support the promptness of payment). PWGSC will continue to monitor provincial and territorial prompt payment initiatives, and will keep provinces and territories informed of the status of the federal regime to ensure alignment where possible.

Strategic environmental assessment

Although construction can have an impact on the environment, this initiative deals only with prompt payment and enforcement through adjudication; as such, there are no environmental issues with this initiative. Environmental issues related to specific construction projects would be addressed at the project level.

Gender-based analysis plus

The direct impact of designating provinces is neutral from a gender-based analysis plus (GBA+).

Implementation, compliance and enforcement, and service standards

Implementation

Designated officials from the provincial government will be contacted by email to inform them that their province has been included in the Order Designating Provinces, and that the effective date will be communicated once final approval is received.

Implementation of the entire federal construction prompt payment regime required four key elements to be in place: the Regulations to be in force, the Adjudicator Authority to be created, the standard Government of Canada construction contract to be revised, and the Act to be in force.

This Regulatory Impact Analysis Statement addresses the Order Designating Provinces, which is linked to the Federal Prompt Payment for Construction Work Regulations (Criteria, Time Limits, Interest and Circumstances) and the Federal Prompt Payment for Construction Work Regulations (Dispute Resolution), is submitted to the Minister of PWGSC for ministerial approval.

The Act comes into force on the day after the day on which the Governor in Council makes the coming-into-force Order, brought forward concurrently with the regulations.

Compliance and enforcement

The legislation does not establish or require a review process to make sure that a province continues to comply, or provisions that their designation status can be revoked. As this designation is based on legislative alignment, and given that the process for changing legislation would be quite lengthy, compliance has not been brought up or considered an issue during legal and/or stakeholder discussions in the development of federal prompt payment.

Contact

Communications, Issues, and Strategic Relations
Real Property Services Branch
Public Services and Procurement Canada
Place du Portage, Phase III, 9A1
11 Laurier Street
Gatineau, Quebec
K1A 0S5
Email: Biensimmobiliers.RealProperty@tpsgc-pwgsc.gc.ca