In 2022, following the Pilot project to facilitate payment to enterprises that are parties to public construction work contracts and related public subcontracts, (2018) 150 G.O. II, 5063 (the pilot project), An Act mainly to promote Québec-sourced and responsible procurement by public bodies, to reinforce the integrity regime of enterprises and to increase the powers of the Autorité des marchés publics (Bill 12) was passed. In essence, Bill 12 amends the Act respecting contracting by public bodies to ensure prompt payments to contractors that are party to public contracts and allow prompt settlement of disputes. However, the terms of the prompt payment regime and dispute settlement process are to be determined by regulation.
As a result, the draft regulation to regulate the terms of payment for contractors and the dispute settlement process (the draft Regulation) was tabled on July 3, 2024. Here are some takeaways.
Request for payment mechanism
The draft Regulation is aimed at determining the rules governing the payment of sums claimed by enterprises that are parties to public construction contracts. It affects several segments:
- The contractor and subcontractors must submit their requests for payment on the 1st and 25th day of each month, respectively.
- Requests must contain specific information, such as the contractor’s contact information and a detailed description of the work carried out. In addition, if a public body may make a withholding to secure payment to a subcontractor, the contractor must include in its request for payment the percentage of the sum claimed representing the subcontractor’s claim and the name of the subcontractor.
- As only essential documents for an assessment of the request for payment may be required, any contractual clause that would require more documents is invalid.
- To refuse a request for payment, public bodies have 21 days following the day on which it is received, whereas contractors have 7 days. A refusal must be expressed in a written notice containing detailed explanations.
Deadlines for payment, withholdings and obligations
Payment deadlines following the day on which the request for payment is received vary based on where the payor is situated in the contracting chain: public bodies must pay at the end of the month, whereas the contractor and subcontractors must pay on the 5th and 10th day of the second month, respectively.
Where a debtor has given notice of its refusal to pay within the time determined, the debtor is required to pay a valid request for payment. Even if it has not sent its own debtor a request for payment, a contractor must pay its subcontractors if they have transmitted a valid request for payment.
The contractor may deduct from payments to subcontractors the equivalent of the work covered by a notice of refusal to pay, subject to certain conditions. In addition, withholdings may be applied, for example to ensure performance of the contract (limited to 10%) or cover defects and poor workmanship. Penalties may also be deducted from the payment if they are provided for in the contract.
Dispute settlement process
The draft Regulation also sets out a prompt dispute settlement process before a third-person decider for issues such as the validity of payment requests or withholdings and deductions, refusals to pay or changes to a contract. However, disputes resulting from a monetary claim of more than $500,000 and damages for, by way of example, loss of profit or productivity are excluded.
A request for intervention must be submitted not later than the earlier of 90 days after the dispute arises or the work is completed. It must detail the nature of the dispute, the grounds invoked and the conclusions sought and propose the names of three third-person deciders. The other party to the contract has five days to respond and designate a third-person decider. If the parties are still unable to agree on the choice of a third-person decider, a random draw will be conducted.
The intervention is mainly conducted orally, but testimony must be given by way of a written affidavit, unless the third-person decider determines otherwise. The assistance of a lawyer is permitted, but the lawyer may not make representations. If one party does not participate in the intervention, it is considered to have withdrawn, allowing the other to request a continuance. The third-person decider must render a decision within 50 days, with the possibility of a 15-day extension, and the party required to pay as the result of a decision has 20 days to comply. Discussions are confidential, but the decision can be filed in evidence in later proceedings, and the costs are divided equally between the parties, except in cases of abusive conduct.
Provisions inspired by the pilot project
In conclusion, those familiar with the pilot project will note that its provisions have visibly inspired the draft Regulation respecting prompt payments and the prompt settlement of disputes with regard to construction work. However, some corrections appear to have been made in light of the report on the implementation of the pilot project on payment deadlines in the construction industry published in March 2022 by the secretariat of the Conseil du trésor, such as the obligation for the debtor to detail the reasons justifying a notice of refusal to pay in response to a request for payment, the option of combining several disputed matters in the same request for intervention, or provisions excluding claims for delay, loss of productivity or indirect costs relating to the prompt dispute resolution process.
However, unlike the pilot project, the draft Regulation does not require the contractor or subcontractor to make a request for intervention before publishing a notice of a legal hypothec.
It now remains to be seen whether any amendments will be made to the draft Regulation before it is passed.
