Recent amendments to Nova Scotia’s Builders’ Lien Act that include prompt payment legislation will cut the number of bankruptcies in an industry where late payment woes have become “endemic.”
“We estimate between 15 and 20 companies a year end up in bankruptcy protection because of payment issues,” said Duncan Williams, president of the Construction Association of Nova Scotia (CANS).
Those bankruptcy numbers are based on Statistics Canada figures indicating that about 35 companies in Nova Scotia’s ICI sector go belly up annually. “Being conservative, I am saying half of those are related to payment terms.”
In mid-April, Bill 119 passed third reading in the provincial legislature. The new Builders’ Lien and Prompt Payment Act will establish a system of requirements – similar to legislation passed in Ontario — to ensure timely payment, says Williams.
Stakeholder consultations are expected to take place in the next few months to develop the regulations (such as the number of days for notification).
“Ideally we are looking at the exact same model as Ontario. Those types of timelines (requiring notifications) make a lot of sense.”
Williams says the new tight timelines will “improve the flow of cash” but there still will be disputes requiring adjudication. “That will be a lot less arduous and litigious than the court system. We’re hoping the province will make the adjudications binding.”
Williams says in the past two weeks two contractors have folded because of delinquent payments and a large general contractor is in dispute with an owner over payment.
Under the old act, he says, contractors were not exercising their lien rights (a 60-day period) because they didn’t know when it started. This especially applied to smaller contractors “who trusted in either the owner or the buyer of construction or even a prime or a trade.”
Contractors that did file liens on time often found the process to be “an expensive and cumbersome one,” he says. “For a small contractor who might be owed $5,000 it is going to cost him at least $2,000 to pursue that $5,000 through the lien.”
Williams says many of CANS members have 20 employees or less. “They don’t have the resources to play ball when it comes to an owner who decides to put the screws to them.”
More than 300 contractors gave responses to CANS surveys over the past few years on payment issues, with many conceding that delinquent payments are “a growing problem.”
Williams says last year most members indicated that delayed payments were occurring on almost all of their jobs. That has limited contractors from making important business transactions such as equipment acquisitions and hiring more workers.
Williams says the new regulations aren’t a panacea to the problems contractors have faced.
“They (contractors) are going to have to make these timelines prescribed in the regulations and follow the standard procedures. If they don’t, essentially they are going to be no better off than they are right now.”
Williams says that CANS has been lobbying for prompt payment for about five years. About two years ago it formed the Nova Scotia Prompt Payment Coalition with unions and open shop contractors and various construction groups.
“It was important for government to see that there was unity in the industry.”