About Time: Bennett Jones Partners Tell Industry To Prepare For New Prompt Payment Rules
Keeping funds flowing on projects is the overall objective of soon-to-be-enacted ‘prompt payment’ provincial legislation, says Brian Reid, partner at Bennett Jones LLP, and it also aims to quickly resolve any disagreements.
“Similar legislation has been sweeping across Canada over the last two years,” he told a Canadian Association of Energy Contractors (CAOEC) speaker series on Thursday. He noted Saskatchewan already enacted similar legislation last year. In Alberta, the legislation amends the Builders’ Lien Act. “There are significant changes.”
Once Alberta’s Prompt Payment and Construction Lien Act comes into force on Aug. 29, all construction industry sectors, including in oil and gas, will be subject to contract payment timelines, ensuring project owners pay invoices to general contractors within a 28-day timeline, and contractors pay subcontractors by seven days thereafter.
“It doesn’t apply to contracts that were entered into as of Aug. 28, 2022, but it applies to any contract that’s entered into after Aug. 29, 2022,” said fellow Bennett Jones partner Geoffrey Stenger. “There’s one exception to that — if you have a contract that’ll be in place longer than two years and you sign that [before legislation takes effect in August].”
He added: “A contractor needs to issue what’s called a ‘proper invoice’ to the owner or a subcontractor [needs to] issue a proper invoice to a contractor. That’s the trigger — the proper invoice. The contract must be set up to allow for a proper invoice to be issued every 31 days. That’s the other shift here.”
Unlike in Saskatchewan, noted Stenger, in Alberta’s new act there is less flexibility in terms of adjusting the invoice frequency within the contract. “Once an owner receives a proper invoice, or contractor receives a proper invoice from a subcontractor, they then have 14 days to review that and decide whether they approve it or not.”
If the invoice recipient does not issue a notice of dispute within 14 days, then the recipient will be deemed to agree with that invoice. “If you don’t dispute an invoice, then you have to pay it within 28 days,” Stenger said. Contractors then have seven days either to pay their contractors or issue a dispute. “An owner or contractor that owes money to a contractor or subcontractor and that doesn’t pay within these periods of time owes interest on the invoices.”
While much of the lobbying for this legislation was by “typical construction contractors,” he added, there are no exceptions for the oil and gas industry. “And so, this applies to contracts where liens arise, such as projects related to oil and gas sites, working on oil and gas sites, and so it applies to drilling contractors.”
The other major change with the legislation is a “fast-track” dispute-resolution process. From start to finish, the adjudication process will be about 60 days. Fortunately, according to Reid, due to the nature of oil-and-gas drilling contracts, typically there is not much litigation. However, if there is a dispute, rather than the matter taking years to resolve, resolution will occur on a much shorter timeframe.
“What’s frightening for me in my practice is that this will cover very complex disputes. You could theoretically have a $100 million dispute, or you could have a $50,000 dispute, and they’re going to be crammed through the same short process.”
First and foremost, Reid told the CAOEC audience, there needs to be strong communication between all parties in order to avoid a potential dispute. “Once there’s sort of a risk of a dispute, and everyone will know that something is going wrong on a particular project, it’ll be important to have an in-house legal council to keep them ‘in the loop’ so they can triage and [ask]: ‘What might we need to be going to prepare for the dispute process?’”
The timeline for registered liens in the oil and gas industry remains at 90 days, said Reid. In terms of the practical impacts from this legislation for energy companies and oilfield service providers, he anticipates that many parties may simply agree to maintain contract status quo regardless of the province’s new legislation, with owners and contractors agreeing to maintain their standard agreements.
He added: “The risk there, though, and it’s probably more on the owner’s side, is if something does go wrong on a project, then the contractor will have the right to say, ‘We know what the contract says. We know we haven’t been invoicing you every 31 days. We haven’t been entitled to payment. But now we’re going to. And you have to pay us in 28 days.’ I think that’s the risk. And they’ll have that right, because the legislation says you can’t contract out of it.”
- Service and Supply