Nova Scotia is the latest province in Canada to introduce legislation that requires prompt payment in the construction industry.
The province government will make changes to the existing Builders’ Lien Act to establish prompt payment rules to ensure contractors, subcontractors and suppliers are paid for their services based on clear timelines.
The legislation will also provide the authority for establishing an adjudication process to resolve disputes faster when timelines are not met. The changes will also establish a rate of interest for payments not made.
There will be extensive consultation on the regulations with stakeholders in the industry before the legislation comes into effect.
The province is introducing the law in response to payment woes in the construction industry, where late payments have driven businesses to bankruptcy.
Duncan Williams, president of the Construction Association of Nova Scotia, told The Star that contractors, subcontractors and suppliers in the construction industry regularly wait months or longer for invoices to be paid. This results in unreliable cash flow and businesses finding it difficult to pay salaries and other expenses.
In a survey of the 800 members of his association, Williams said 70% reported chronic late payment on contracts. He said 30 to 40 construction businesses went bankrupt in Nova Scotia last year and he attributed half of those to late payment.
Nova Scotia follows in the footsteps of other Canadian provinces – Ontario, Saskatchewan, New Brunswick, Manitoba, Québec, Alberta and British Columbia - that have enacted laws or tried to impose similar rules.
In Ontario, the prompt payment law's timelines start with the delivery of a "proper invoice" from the contractor to the owner. A "proper invoice" must include all the relevant information such as the contractor's name and address, the amount payable, and the period during which the services or materials were supplied.
The owner must pay the contractor’s proper invoice within 28 days of receipt. The contractor in turn has seven days to pay its subcontractors who supplied services or materials that were included in the proper invoice sent to the owner. Once a subcontractor is paid by the contractor, it has seven days to pay down to all sub-subcontractors whose work was included in the proper invoice.
Owners will be paying particularly attention to invoices, to check whether they are, in fact, proper.