Service Alberta-Land Titles Prompt Payment Stakeholder … · 2020-07-13 · Industry Context...

Classification: Public

Service AlbertaJune 17th, 2020

Prompt PaymentIn the Construction Industry

Classification: Public

Welcome/ Opening Remarks

2

Time Allocated:

120 minutes

Agenda Topics Lead

5 minutes Welcome and Introductions Richard Schlachter

5 minutes Opening Remarks Brandy Cox

10 minutes Meeting Facilitation Scott Vaughan

90 minutes Session One - Information Sharing

Prompt Payment - Industry Context & Alberta’s Engagement

Process

Progress to Date

What We Heard

Questions

Next meetings:

June 24 Session Two - Breakout discussions

June 30 Session Three - Alignment discussions

Curtis Woollard

All Participants -

questions will be

recorded in Q/A

10 minutes Closing Remarks Department

Classification: Public

Purpose of Today’s Meeting – Session 1

Reaffirm the purpose/objectives and steps of the project

To communicate the results of the face to face sessions and the survey and

respond to questions you might have related to the information

Link this Session 1 (What was Heard/Survey information) to the work

required in upcoming Sessions 2 and 3

Classification: Public

Purpose of Sessions 2 & 3

Session 2 – June 24 Present topic areas with corresponding discussion statements with (via infographics)

Discuss the topic areas with discussion statements (via break-out groups), gather

feedback, find out which ones you are comfortable with and which ones you are not as

comfortable with and need more work/discussion (those will move on to session 3)

Session 3 – June 30 Discuss and further refine the identified “need more work - less comfortable” topic

areas/discussion statements in break-out groups.

Classification: Public

Questions

There will be a question and answer opportunity at the end of Curtis’s

presentation today.

You can ask your question by utilizing the Q/A feature on your screen

If we unable to answer your question this morning we will make sure that it

is answered offline for you

Classification: Public

Industry ContextPayment Issues in the Construction Industry

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Industry Context - Delayed Payment

7

• Current payment processes are not working for many.

• Business viability is being impacted with COVID-19

heightening this problem.

• Representative construction industry organizations

have communicated that timeliness of payment is a

significant problem.

• The payment cycle has risen to over 70 days

throughout the industry and is even higher in the oil

and gas sector.

Classification: Public

Classification: Public

Industry Context – The Builders Lien Act

9

• In addition to conventional collection steps through

the Courts, unpaid suppliers of work or materials

may file a lien within specified timelines against the

property pursuant to the Builders Lien Act.

• There is no need to have a contract with the owner

of the land. The right arises from having added

valuable work or materials to the land.

Classification: Public

Industry Context – The Builders Lien Act

10

• In Alberta, a supplier may file a lien within 45 days of

completion of work on the project.

• Other jurisdictions lien periods are as follows:

Province Days to File a Lien

BC 45 days

Alberta 45 days

Saskatchewan 40 days

Manitoba 40 days

Ontario 60 days

Nova Scotia 60 days

New Brunswick 60 days

Classification: Public

Industry Context – The Builders Lien Act

11

• The Alberta Land Titles Office receives all liens for

registration against titled land.

• In 2019:

4,237 liens were registered.

535 liens were protected by lawsuits initiated through

the Courts.

Total value of the liens was $786 million.

Median value of a lien was $15,311.

Classification: Public

Industry Context – The Builders Lien Act

12

• The Builders Lien Act was passed in the early

1980’s with only one amendment to date.

• In 2001, the Act was amended to provide a special

lien period of 90 days the oil and gas sector.

• Today, that sector reports average payments over

100 days, leading to calls to further increase the lien

period.

Classification: Public

Ontario Lien Period

60 days

Alberta Lien Period

45 days

Classification: Public

Industry Context – The Builders Lien Act

14

• Given the length of the payment cycle and the amounts

claimed, two fundamental problems with the Builders

Lien Act have been revealed:

1. Lien rights are frequently lost because the time to

file a lien expires prior to awareness of a payment

dispute.

2. The median value of filed liens reveal that the costs

of litigation are disproportionate to the value of the

amount claimed, thus making little economic sense

to pursue lien claims through the Courts.

Classification: Public

Industry Context – Prompt Payment

15

Calls for the implementation of ‘prompt payment’

have been seen throughout Canada.

• Ontario’s Construction Act came into force in 2019.

• Federal legislation concerning federal procurement

contracts has also been exacted.

• Currently, prompt payment initiatives are being pursued at

various stages throughout most provinces, including all four

western provinces.

Classification: Public

Industry Context – Prompt Payment

16

• Prompt payment generally includes the following

attributes:

1) Prompt Payment - Statutory provisions requiring

specified timelines for payment and corresponding

penalties for non-compliance.

2) Adjudication – Disputed invoices are dealt with through

arbitration using streamlined rules.

Classification: Public

Industry Context – Prompt Payment (Ontario)

17

ON’s Prompt Payment mandates the following payment guidelines:

28 35 42 490

Contractor delivers a proper invoice

(Assumes no notices of

non-payment are delivered)

Payment is due from the Owner within

28 days of proper invoice

Owner pays contractor in

full during the 28-day

period

(Assumes no notices of

non-payment are delivered)

Subcontractors pay Sub-

subcontractors within 7 days of

reciept of Contractor s pay

Contractor pays Subcontractors within 7 days of

receipt of Owner s payment

Sub-subcontractors pay Sub-sub-

subcontractors within 7 days of

receipt of Subcontractor s

receipt, etc

CALENDARDAYS

(7 DAYS)(7 DAYS)(7 DAYS)

Classification: Public

Industry Context – Prompt Payment (Ontario)

18

• In the event of a dispute, adjudication must be undertaken

through a delegated authority.

• The dispute process takes the following steps…

4 Days

Named Adjudicator accepted ?

YES

No Adjudicator

Determination/Decision

Adjudicator receives documentation and

initiates process(Review/Inquiry/

Hearing)

Proposed Adjudicator Named Adjudication Initiated

Compliance is required or risk of enforcement/suspension

NO

Adjudicator Appointed

Referral to Governing Authority to appoint an adjudicator

7 Days

Classification: Public

Industry Context – Prompt Payment Review

19

• It is necessary to undertake a comprehensive review

of the Builders Lien Act, Prompt Payment, and

associated issues within the industry in order to

effectively address payment elongation.

• Efforts to introduce stand alone legislation through

private members bills in Ontario, Manitoba, and

Saskatchewan did not proceed due to a lack of

harmonization with existing builders lien legislation.

Classification: Public

Progress to date…Where We’re at in the Process

Classification: Public

Progress to date…

21

• November 2019: a pre-engagement meeting was held with

stakeholders in to initiate a comprehensive review of the

Builders Lien Act and payment issues in the construction

industry.

• January 17 and 24: four in-person sessions were held in

Edmonton and Calgary with 71 attendees.

• February 20: an online survey was launched and due to

COVID-19, was extended to May 1, and completed by over

800 respondents.

Classification: Public

22

• In person session attendees included representatives

throughout the construction industry including:

Progress to date…

General Contractors

Developers/Owners

Suppliers

Trade Associations

Construction Companies/Associations

Universities

Oil and Gas

Municipalities and Public Works

Professional Associations

Government

Classification: Public

Progress to date…

23

• Both the in-person and online survey consultation

covered eight areas:

Prompt payment

Adjudication

Holdbacks

Modernizing Lien Provisions

Interprovincial Rule Harmonization

Transparency

Bonding

Trust Remedies

Classification: Public

Progress to date…

24

• The online survey was open to selected industry groups

and was sharable by those groups with their membership:

Survey Report Info

Stored Responses 894

Number of completed responses 539

Surveys sent out 1,209 (minimum)

Industry Stakeholder Responses 642

Public Sector Stakeholder Responses 45

Other/Prefer not to Say 56

Classification: Public

What We Heard…Overview of the Feedback Received in Person and Online

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What We Heard – Areas of Feedback

26

• The top three areas of feedback were:

• The three areas of least feedback were:

Area of Most Concern

Prompt Payment 65.67%

Holdbacks 52.36%

Modernizing Lien Provisions 52.03%

Areas of Least Concern

Bonding 35.15%

Interprovincial Rule Harmonization 27.46%

Reform of Trust Remedies 25.56%

Classification: Public

What We Heard…

Prompt Payment

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What We Heard - Prompt Payment

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Prompt Payment was the area that received the highest selection

for completion in the survey.

Prompt Payment Scope:

Prompt Payment should apply to all construction projects.

Exemptions should not be available to achieve uniformity.

All projects/people should benefit from prompt payment.

Legislation should provide consistency with universal rules.

Classification: Public

What We Heard - Prompt Payment

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A Proper Invoice should:

initiate the prompt payment process;

include Contractor’s name address, date and period of services,

amount payable and where payment should be sent; and

also include the GST #, purchase order, change orders.

Prompt Payment Considerations:

Payment should be due within a 28-30 day window.

Interest payments should be stipulated as part of prompt payment.

Many responses believe “Pay when Paid” clauses need to be

eliminated and legislation should be used to do so.

Classification: Public

What We Heard - Prompt Payment

30

Prompt Payment Common Concerns:

Proper Invoice may be too complicated or difficult to compete.

Timelines may not be compatible with financing and draw

processes.

Additional administrative burdens may lead to higher costs to

businesses.

The implementation of strict rules impact on the freedom of

contract of the parties.

Classification: Public

What We Heard…

Adjudication

Classification: Public

Adjudication Governance and Training:

Support for an arm’s length government controlled agency,

board or commission to oversee all aspects of adjudication.

A Government of Alberta ministry was the alternate choice for

adjudication governance and oversight.

Respondents believe the dispute process should be

capable of being initiated by any party involved with

contract.

Experience in construction industry is required to qualify as

adjudicator.

What We Heard - Adjudication

Classification: Public

Adjudication Considerations:

Parties mutually decide on adjudicator within 4 business days.

If unable to agree on adjudicator, one is appointed within an

additional 4 days.

Appointed adjudicator must receive documents within 7 days

and make their decision within 7 days.

From appointment to decision would be a maximum 22 days.

Adjudicator’s decision should be binding on the parties.

What We Heard - Adjudication

Classification: Public

Adjudication Common Concerns:

Maintaining the impartiality of the adjudicator was raised as a

common issue. Many individuals within the construction industry

are known to each other, which could create conflicts of interest

for adjudicators that would need to be carefully managed.

A concern was raised with respect to controlling costs to the

industry, which is an impediment to using the Courts in the

current system (payment for adjudicators, recertification and

professional development costs, delays in contract (penalties)).

What We Heard - Adjudication

Classification: Public

What We Heard…

Holdbacks

Classification: Public

Holdbacks were the second highest area selected for completion in

the survey.

Holdbacks Considerations:

What We Heard - Holdbacks

A majority of responses concurred that the current 10%

holdback is sufficient and should remain unchanged.

Guidelines for the relationship between deficiency holdbacks

and holdbacks for liens would be beneficial as the use of

such holdbacks creates confusion.

A majority of respondents indicated they do not distinguish or

use the minor or major lien funds for holdbacks differently.

Support for the annual or progressive release of holdbacks

was high throughout the industry.

Classification: Public

Holdbacks Common Concerns:

The most common concern was the use of lien holdback

money for deficiencies.

The amount of the holdback is often higher than the value of

deficiencies but the total amount is nevertheless retained.

What We Heard - Holdbacks

Classification: Public

What We Heard…

Modernizing Lien Provisions

Classification: Public

Modernizing Liens Considerations:

There should be periodic review of the minimum lien amounts to assist with deterring frivolous liens (currently at $300.00).

Lien amounts that fall under the jurisdiction of the Provincial Court should be able to be adjudicated there.

The lien period should be harmonized with prompt payment provisions.

The lien period should be increased. The vast majority of respondents favored a longer lien period of some duration.

What We Heard – Modernizing Lien Provisions

Classification: Public

Industry Stakeholder Specific Findings BLA-Filing Period

20%24%

11%

28%

11%

2%4%

45 60 60/90 90 120 Don'tKnow

Other

General Contractor46 Responses

11%

16%

12%

36%

19%

1%5%

45 60 60/90 90 120 Don'tKnow

Other

Trade Contractor207 Responses

2%

13%19%

53%

7%2% 4%

45 60 60/90 90 120 Don'tKnow

Other

Supplier53 Responses

47%

15%

8%

15% 15%

45 60 60/90 90 120

Developer/Owner13 Responses

23%

31%

8%

31%

7%

45 60 60/90 90 Other

Representative Org/Association

13 Response

28%

8%

16%

33%

8%

3% 3%

45 60 60/90 90 120 Don'tKnow

Other

Professional/Consulting

36 Responses

9%

32%

4%

36%

9% 9%

45 60 60/60 90 120 Don'tKnow

Public Sector22 Responses

4%

14%

23%

28%

14%

18%

45 60 60/90 90 120 Other

Other22 Responses

Classification: Public

Modernizing Lien Provisions Common Concerns:

What We Heard – Modernizing Lien Provisions

The 45 days to file period is too short and the filing of a lien

can damage a business relationship.

Extending the lien period may, over the long run, elongate

the payment cycle beyond an extended lien period.

The filing of frivolous/vexatious liens should be addressed

as this can impact project financing.

Upon filing a lien, the 180 day period to commence an

action should be reviewed as it is long.

Classification: Public

What We Heard…

Transparency

Classification: Public

Over half of the respondents report being impacted either very

frequently (33%) or somewhat frequently (36%) by the lack of

transparency.

The current provisions of the Act do confer rights to demand

information, but their use is limited because of the impact on business

relationships.

Insufficient transparency with respect to the payment certification

process.

73% of respondents claimed their biggest challenge is transparency

with the Commercial Industry.

What We Heard – Transparency

Transparency Common Concerns:

Classification: Public

What We Heard…

Bonding

Classification: Public

Bonding was the third lowest area selected for response in the

survey.

What We Heard - Bonding

Bonding Considerations:

Bonding should be decided by owner/general contractor.

Many respondents felt that public projects should be bonded.

Value of contract/project should determine whether bond is

required ($500,000 was the most common suggested threshold).

Risk and duration should be considered in necessity to bond.

Bonds should not affect ability to adjudicate or file liens.

Classification: Public

Bonding Common Concerns:

Bonding is not currently legislated in Alberta and should be

left to the parties in contracts to decide.

Bonding increases overall project costs, especially on

smaller projects and may exclude some firms/ individuals

from bidding.

What We Heard - Bonding

Classification: Public

What We Heard…

Trust Remedies

Classification: Public

If trust remedies remain in legislation they need to be

strengthened with more accountability and consequences.

Knowledge of trust remedies is limited in the industry. The current

legislation requires more clarity for better understanding among

industry.

What We Heard – Trust Remedies

Trust Remedies Considerations:

Trust Remedies received the fewest selections for response in the

survey.

Classification: Public

Trust Remedies Common Concerns:

Trust remedies are poorly understood and utilized within the

industry.

If there is to be an imposition of new rules, there is a concern

that it will add to ‘red tape’ and complicate matters.

What We Heard – Trust Remedies

Classification: Public

Questionsquestions recorded in Q/A

Classification: Public

Analysis availableEmail your request to promptpayment@gov.ab.ca for:

• Online Survey Results

• Survey Respondent Summary

• Engagement Meetings Summary

Classification: Public

Next Meetings…June 24 Session Two Breakout discussions

June 30 Session Three Alignment discussions

Contact: promptpayment@gov.ab.ca