Assessing the Impact of the Prompt Payment Act

Late payments have long been a serious issue in the construction industry, creating financial strain for contractors and subcontractors alike, sometimes resulting in project delays and stress that did not need to be placed on projects. In December 2023, Canada addressed this issue by introducing the Prompt Payment Act. Enacted at the federal level, the legislation aims to streamline payment processes, ensuring funds flow efficiently down the construction payment chain. Currently, the federal government must settle invoices 28 days after submittal.

The act sets specific deadlines for payment at various stages of the construction process. For instance, owners must pay contractors within 28 days of receiving a proper invoice, and contractors must, in turn, pay subcontractors within seven days of receiving payment.

The most obvious benefit of the Prompt Payment Act is the improvement of cash flow through projects. Contractors and subcontractors, who traditionally often faced delays in receiving payments, can now expect more predictable and timely inflows of funds, allowing for better financial planning and stability.

This should prove to be transformative for the industry, not only for those working on federal projects to which the act specifically applies, but should have a knock-on effect of making other construction industry professionals follow similar standards.

Managing this change

While this is a great thing for the industry and helps create professionalism, it places increased pressure on those managing projects to get their invoices paid promptly. This is where contract administration software comes in: With RForm’s Schedule of Values, Change Order process, and Certificates for Payment, the process is easier and assists Architects in meeting timelines required by the new legislation.

Transparency is a cornerstone of the Prompt Payment Act. The legislation mandates clear communication and documentation of payment processes, creating a more transparent and accountable construction environment. This increased visibility helps prevent misunderstandings and promotes a culture of trust among project participants. With RForm, every document in the project is easily accessible to all parties—transparency is built in, and there’s no need to create additional documentation in support of this new legislation. With RForm, you already have all the tools you need.

The act also includes several other measures that architects must be aware of, including an adjudication process that provides a swift and cost-effective way to settle disagreements, ensuring that cash flow remains uninterrupted. With this adjudication process in place, parties involved in a construction project are incentivized to collaborate and resolve issues swiftly rather than resorting to lengthy legal battles.

The Prompt Payment Act also introduces an interest provision to incentivize timely payments. If a payment is delayed, the owing party is liable to pay interest on the outstanding amount, compelling adherence to the stipulated timelines.

Additional benefits

While the most obvious benefit of this legislation is the improved financial security and stability it promises contractors and subcontractors, it will also help strengthen stakeholder relationships and improve the efficiency of projects. When contractors are paid on time, they are respected and more likely to be amenable when issues arise on a project—as they always do. Creating an environment of mutual respect and prompt payment is the absolute best demonstration of how much you respect a contractor’s time and commitment to your project. It helps a project run smoothly and ensures that the contractor will want to collaborate on future projects.

Designed to help architects, consultants and contractors, RForm’s Schedule of Values and Certificate of Payment features help reduce the time to verify and process Application for Payments saving time. Contact us now for a free demo of RForm to see how much easier contract administration is for your office.

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Navigate the Prompt Payment Process with Our Free Bulletin

Our bulletin on the Canadian Prompt Payment Legislation offers offer practical tips and strategies for navigating the prompt payment process, including best practices for requesting payment, resolving payment disputes, and enforcing payment deadlines. With insights from industry professionals, this RForm Bulletin will be a valuable resource for Architects and Contractors looking to stay updated and compliant with Canada’s prompt payment reforms.

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