It’s an old saying in business that cash flow is king. Anyone who is self employed understands this, yet in recent years there has been a troubling trend away from reasonably prompt payment schedules and towards an approach where sub-contractors are often waiting many months for payment.
In the United States there has been growing awareness of the problem and legislative action. As a result every state government in the U.S. has enacted prompt payment legislation for public construction projects and over one third of U.S. states have enacted prompt payment legislation for private contracts.
In Canada there have been a number of provinces, including British Columbia, that have passed legislation regarding timely payment when it comes to public sector contracts. However with the exception of Ontario there has not been much legislative action to address this issue with regards to private sector construction.
In May of 2013 a private members bill, Bill 69, the Prompt Payment Act, 2013 received all party support when it passed second reading in the Ontario Legislature. However as is the case with most private members bills it did not become law.
However Prompt Payment Legislation is still very much a subject of serious discussion in Ontario. The Mechanical Contractors Association, in conjunction with other industry associations is hoping to get that same discussion started within our provincial government here in British Columbia.
One of the oft stated priorities of the B.C. government is the hiring of more apprentices by contractors. The 2013 Prism Report pointed out that there is a direct connection between prompt payment and the ability of contractors to hire more apprentices. Lengthy delays in payment to contractors discourage long-term payroll commitments and by doing so discourage investment in apprenticeships. This has a broader economic impact because the construction industry accounts for roughly 40 per cent of all apprenticeship in B.C.
The lack of prompt payment legislation also acts as a barrier to smaller contractors in terms of bidding on projects. Unless you are large enough to handle significant delays in receiving payment, it is hard to compete. This lack of competition in turn drives up the cost of construction.
It is for this reason that in addition to much of the United States, Prompt Payment Legislation has been adopted by many other jurisdictions including the Great Britain, Australia, Ireland and New Zealand. The European Union has also recently adopted a motion to require all members to enact prompt payment legislation.
So if we use the Ontario legislation as a model, what would that mean if similar legislation was enacted here in B.C.? Let us refer to this as the B.C. Prompt Payment Act.
(Proposed) B.C. Prompt Payment Act:
- The Act would apply to every construction contract in British Columbia
- Progress payments will be made on a monthly basis at the minimum
- Final payment to be made no less than 30 days after application for payment has been made
- A payee has the right to suspend work and enforce lien rights if a payer is more than seven days late
- A payee has the right to information on the scheduled due dates for progress payments to a payer and the payer’s receipt of those payments
- A general contractor and sub-contractor have the right to reasonable financial information regarding the owner’s financial arrangements to meet its payment obligations.
General contractors and trade contractors working on construction projects deserve to be paid in a timely fashion for the work they have completed, like any other business operating in British Columbia.
In those jurisdictions where it has been enacted, prompt payment legislation has resulted in more construction jobs, encourage greater use of apprentices, enabled more investment into machinery and equipment and lowered the cost of construction. It has also enabled smaller firms to compete and bid on construction projects.
So in addition to the aforementioned benefits to both the consumer and construction sector, as well as increased employment and more apprentices being hired for longer periods of time. there lies perhaps the biggest benefit of all to government, this legislation doesn’t require a budgetary line item.
In fact it would be difficult to think of a potential piece of legislation that requires no substantial cost outlay that benefits business, consumers and labour to such an extent. It also appeals to the public’s innate sense of fair play. People and companies deserve to be paid in a timely manner for the work they do.
The biggest enemies in terms of getting prompt payment legislation passed in British Columbia are lack of awareness and lack of effort. There is an overall lack of awareness within government that this is a pressing and growing problem.
To solve this will require a concerted effort not just from the multitude of construction sector associations, but also from individual contractors as well. If we collectively sit on our hands waiting for Ontario to pass its legislation and then hoping B.C. will follow central Canada’s example, then we will be waiting many years if not decades for such legislation. If however we make a concerted effort, this is legislation that could easily be enacted before the next provincial election which is just over two years away.