Alberta Infrastructure (AI) has made four key changes to its contracts to address concerns over prompt payment in the province’s construction industry, the Alberta Construction Association (ACA) announced earlier this month.
First, the contract now specifies a maximum of 30 days after the initial receipt of the application for payment, provided the contractor has properly completed their claim.
AI will verify the invoice and adjust if necessary, advising the general contractor within 14 days of the amount to be paid.
AI has also modified the statutory declaration so that the general contractor must confirm they paid their subcontractors within 10 days of receiving payment from the government.
Second, AI contracts now state that amounts which are not in dispute will be paid and disputed amounts will be resolved during the next invoice period.
Third, AI has committed to publicizing the date of payment so that subcontractors and suppliers will be aware of when the prime contractor was paid.
And fourth, upon appropriate application, holdback funds will be released once the portion of the work is complete.
The contractor will submit their certificate of substantial performance for their portion of the work performed and follow normal procedures of posting the certificate at the job site.
After the 45-day period, the contractor then applies for release as part of the next progress claim.
The ACA, which pushed for the changes, applauded the news, writing that "prompt pay supports jobs for Albertans and their families through increased cash flow (and) allows companies to increase staff."
The association added prompt payment also supports small business as it will allow companies to pursue more work with timely payments and saves money for taxpayers with lower bid prices by reducing the cost of financing receivables. It will also increase the number of competitive bids.
"While delayed payment is an issue across industry, Alberta Infrastructure has shown great leadership to step up and offer a solution that we hope is adopted by other owners," said Ken Gibson, ACA executive director.
Those in the subcontracting community call it a step in the right direction, but feel legislation is needed to really enforce change.
Russ Evans, executive director of the Mechanical Contractors Association of Alberta, said he is glad AI is finally recognizing that payment has become a huge issue in construction. He also praised the ACA for raising the issue with the province.
"It’s a good example and it’s a good starting point. We have been pounding on this for a lot of years," he said.
Evans explained that many of the association’s members have continual cash flow demands and delayed payment increases the cost of doing business.
"Over time this increases the construction costs and reduces the efficiencies of doing construction," Evans said.
"It’s hard to be competitive in a global market when you are doing this. It puts more strain on the little guys. I think that’s the core of it."
However, Evans said it remains to be seen if those further down the ladder of payment will benefit.
"Our concern is that their protocol only applies to them, it doesn’t apply to generals," he said.
"It’s only a voluntary code. There’s no guarantee the general contractors will trickle that down or adopt that protocol themselves."
Tim Padfield, president at Pad-Car Mechanical Ltd., agreed the changes are very positive in terms of transparency, but expressed concern over how to enforce them.
"When conditions aren’t being met, what teeth are there?" he said.
Padfield pointed to Bill S-224 which has reached second reading in the Senate as part of the solution.
The private member’s bill would only cover contracts and the subcontracts of those contracts with the federal government. According a release from supporters, it "ensures that the government institution must make progress payments to a contractor on a monthly basis, or at shorter intervals provided for in the respective contract. This payment requirement is consistent down the contractual chain."
It also accounts for milestone payments and stated contractors have the right to suspend work, terminate a contract and collect interest on late payment.
That right to terminate work when not paid without fear of reprisal is the key, said Padfield.
"We can hold up the entire job for non-payment," he said.
"AI has gone a long ways in visibility and transparency, but should there be a break down in the process, what rights still exist?"
He believes legislation needs to be passed that would say one can’t have a contractor that forces a subcontractor to continue work even if they haven’t been paid.
"What’s happening is we are financing the project," he said of delayed payment.
"If we always have a large cash flow out there we are incurring financing charges on that…we could be putting that back into working capital to grow or back in to the economy."
Dave Smith, head of the Calgary Construction Association, commented that "in these volatile economic times in the province of Alberta prompt payment is essential to all those in the contractual time.
"The Calgary Construction Association is currently addressing this issue in the Calgary region with various owners who purchase construction services."
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