The prompt payment and adjudication provisions of the Construction Act come into effect on October 1, 2019. The goal of the new prompt payment regime in the Construction Act is to ensure that those who provide services or materials to a construction project are paid on a timely basis. As of October 1, 2019, the construction industry needs to be ready to adjust its accounting practices to abide by the new regime. It should be noted that the grandfathering provisions that apply to the other amendments of the Act also apply to the prompt payment amendments.
Under the Construction Act, a contractor must provide to an owner a “proper” invoice on a monthly basis unless the contract between the parties stipulates otherwise. The Act provides that the proper invoice must contain the following information, as well as any other requirements that the contract specifies, including:
- The contractor’s name and address;
- The date of the proper invoice and period during which services or materials were supplied;
- Information identifying the authority under which services or materials were supplied;
- A description, including quantity, of the services or materials supplied;
- The amount payable for services or materials supplied and payment term;
- The name, title, telephone number and mailing address of the person to whom the payment is to be sent; and
- Any other information that may be prescribed by the contract and/or by Regulations.
It should be noted that receipt of the Proper Invoice by the owner is the trigger for payment to the contractor. However, subcontractors or sub-subcontractors/suppliers are not bound by the strict requirements to deliver a “Proper Invoice” as defined above.
Payment by Owner to Contractor
Upon receipt of a Proper Invoice, the owner must pay the amount due within 28 days. However, if the owner disputes all or part of the invoice, the owner must deliver a Notice of Non-Payment with 14 days of receipt of Proper Invoice. The Regulations to the Construction Act set out the form of the Notices of Non-Payment. The Notice of Non-Payment must set out the amount not being paid and all of the reasons for not paying. All amounts that are not identified in the notice must be paid to the contractor.
Payment by Contractor to Subcontractor
If the Contractor received payment in full, it must pay the subcontractors included in the invoice within seven days of receipt of payment by an owner.
If the contractor received payment in full from the owner but the contractor disputes all or part of the subcontractor’s entitlement to payment, the contractor must deliver its own Notice of Non-Payment to the subcontractor identifying the amounts in dispute and the reason for non-payment within 35 days after the Proper Invoice was given to the owner.
If an owner delivers a Notice of Non-Payment, the contractor must still pay the subcontractor within 35 days after the Proper Invoice was given to the owner, unless within seven days of receipt of the Notice of Non-Payment from the owner, the contractor delivers to each affected subcontractor a copy of the said notice along with its own Notice of Non-Payment. It is important to note that in this circumstance the contractor must refer the matter to adjudication.
Payment by Subcontractor to Subcontractor
The payment regime corresponds down the construction pyramid. As with a contractor, a subcontractor must pay its subcontractor within seven days of receipt of payment by the contractor unless it files its own Notice of Non-Payment identifying the amounts in dispute and the reason for non-payment.
There are several implications to consider under the new construction payment regime. Invoices will take more time to prepare. Payments must be made quickly. Payers must serve the Notice of Non-Payment within the required timelines or they will be required to pay the invoice in full. Companies will also need to keep detailed records to be able to identify any reasons for non-payment. It will be key for companies to do a review of their accounting procedures prior to October 1, 2019 in order to be prepared for the new regime.