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The highly anticipated federal prompt payment review was completed recently, providing the Government of Canada with a set of recommendations for the implementation of prompt payment and adjudication legislation on federal construction projects.

The review, entitled Building a Federal Framework for Prompt Payment and Adjudication, was led by Bruce Reynolds and Sharon Vogel of Singleton Urquhart Reynolds Vogel LLP. The 258-page report contains 55 recommendations and was delivered to the government on June 8. After being translated, it was publicly released and posted by Public Services and Procurement Canada (PSPC) Aug 2.

The motivation behind the report was a desire by stakeholders to ensure cash flows down the construction chain quickly. It recommends that payment between the federal owner to general contractor be 28 days, and the payment at levels below the general contractor be seven days from receipt of payment from the owner. This would continue down the contractual chain.

“What we have suggested is that prompt payment and adjudication be introduced through federal legislation applicable to federal projects,” said Vogel, adding the system is similar to what they recommended when they conducted the review in Ontario.

“We’ve recommended that a prompt payment regime be introduced that allows parties flexibility but at the same time introduces mechanisms for parties to be paid more quickly. In relation to adjudication, we’ve recommended adjudication as an enforcement mechanism for prompt payment so that parties can seek to adjudicate disputes in relation to payment.”

The process began by preparing an information package explaining the team would be reviewing federal prompt payment and adjudication which was then sent out to a list of key stakeholders.

We found support on all sides for the introduction of legislation at the federal level

— Bruce Reynolds

Singleton Urquhart Reynolds Vogel LLP

“We compiled an information package which explained the issues and posed a number of questions that we were attempting to answer and advised people that we would be seeking their input and that we would be having industry engagement sessions across the country and gave people a schedule for those industry engagement sessions. Then we hit the road,” said Vogel.

On the “road trip” Reynolds, Vogel and staff from their Toronto and Vancouver offices met with over 500 people in 55 meetings and conference calls and also received a number of written submissions. They visited 10 provinces and two territories.

“Interestingly, we found support on all sides for the introduction of legislation at the federal level mandating prompt payment and the resolution of payment disputes through adjudication,” said Reynolds.

“The federal government is committed to taking a leadership role in regards to respecting and supporting the principles of prompt payment and the general and subcontractor communities are also, as the parties directly interested in receiving these payments promptly, equally committed,” Reynolds said.

The process took place in three phases, Vogel explained — preparing a list of stakeholders and sending out the information package, industry engagement and research and writing.

“We received really valuable input on the issues that had been set out in the information package,” she said. “In the second phase of obtaining feedback we heard about new issues and concerns that people had in relation to prompt payment in particular and also we heard generally about issues that contractors, subcontractors, suppliers and trades were facing on construction projects. We also met with government stakeholders and they talked to us about some of the issues that they faced in the course of trying to get the projects completed on time and on budget.”

The scope of the potential legislation had to be looked at carefully in terms of the federal government’s power to legislate over certain matters.

“When we looked at the objectives of the act we also had to keep in mind the existing legislative and policy framework, including the Financial Administration Act and related regulations, and Treasury Board directives and also the federal government standard form contract provision,” Vogel pointed out. “There was a lot to take into account, a lot of constraints that had to be examined carefully in considering what were the appropriate objectives of the legislation and what was achievable. We had to look very closely at the applicability of this potential legislation in terms of the constitution.”

The federal government cannot pass legislation that infringes upon the constitutional authority of the provinces, added Reynolds.

“We asked for and received the agreement of PSPC for Sharon and I to attain a retired supreme court Justice Thomas Cromwell and Guy Pratte of Borden Ladner Gervais LLP to provide us with a constitutional opinion and that opinion is an appendix to our report,” said Reynolds. “We used that opinion, which identifies the parameters within which federal legislation can be enacted, to formulate our recommendations in regards to the breadth of applicability of the federal legislation to be.”

The report also recommends the federal government revise its standard form construction contract. There are also a couple of issues where further consultation was suggested including the applicability of the legislation to Indigenous lands and also insolvency risk in relation to whether a trust regime or mandatory surety bonding might be appropriate if it’s not possible to introduce trust provisions.

Another key issue pertains to legislative alignment, said Reynolds, adding its important on a national level because there is a risk of different jurisdictions adopting different models.

“The situation now is that we have prompt payment and adjudication in the Construction Act of Ontario which will come into force on Oct. 1, 2019 and we are going to have federal legislation which, if our recommendations are accepted, will be based on the same model as the Ontario legislation,” Reynolds noted.

“One of the things we have flagged in our report is as the movement makes its way across Canada it’s quite important that the legislative model be consistent, otherwise we risk falling into difficulties such as has been experienced in Australia where the various states and territories have adopted legislation which is not well aligned in certain respects. The alignment issue is extremely important and it will certainly require further work.”

Reynolds and Vogel have been retained for a second phase of their mandate which is to assist PSPC as they instruct the Department of Justice in relation to the drafting of the legislation. The government is hoping to introduce legislation by the end of 2018.