The latest round of changes to the Construction Lien Act that took effect on October 1st, 2019 making prompt payment the hot topic in the industry. As you begin working on projects that fall under the prompt payment rules, there is more to consider than just the wording of your contracts. Your staff also need to be prepared for the changes coming to their roles and processes.
As an owner, you may feel the effects of any proceedings under the new Act immediately should you incur additional legal fees for adjudication, so there are some things to consider and plan for on top of just legal strategies.
- Do you have adequate working capital or working capital facilities to deal with the quicker cash flow requirements (you will be paid by the project owner within 28 days and then have seven days to pay your subcontractors)?
- Do you have appropriate processes in place at your office to meet the tighter timelines?
- Have you prepared all your staff for how the changes affect their role?
- Have you updated your contract templates to add extra protection and time where the prompt payment rules allow?
The accounting department will likely be one of the hardest hit by prompt payment once your contracts have been updated. The accounting department should consider the following.
- Are there adequate tracking processes for the prompt payment rules? With multiple jobs ongoing at once, the accounting department will be required to track each job to ensure compliance with prompt payment or the timely issuance of non-payment notices.
- Do your invoice templates meet the requirements of a “proper invoice”?
- Do you have adequate processes to ensure invoices are approved for payment within the new shortened timelines (that do not require the accounting staff to chase approvals regularly)?
- Is the accounting department aware of the importance of quick filing and reporting to ensure documentation can be produced in time should adjudication be required?
- Do you have policies in place to adequately track trust funds based on the new terms of the Act (which came into effect in July 2018)?
- Do your accounting staff understand that holdbacks are now to be released based on milestones or at least annually?
Project Managers (PMs)
PMs will face even more pull between being at the job site and being available to the office staff under the prompt payment and adjudication rules.
- Are PMs aware they will need to ensure invoices are approved as soon as possible to allow accounting to meet the payment deadlines?
- Do the PMs understand the changes to the Act and the changes your company made to the contracts and how it affects their job?
While the changes to the Act appear to be more legal and accounting related on the surface, even construction labour will be affected.
- Have skilled labourers been informed of the increased importance of timely timesheets to meet the tightened accounting cycle?
- Have labourers been trained on maintaining positive relationships with project owners and subtrades that they encounter on site in order to avoid unnecessary adjudication?
If all the impacts on your own staff are not enough, those who provide services to your company will also be impacted and will need to be managed. If your subcontractors and their staff do not understand the changes you could be faced with unnecessary adjudication. The engineers certifying your projects will also need to be brought up to speed on your expectations for timing of reports. There will be a learning curve and bumps along the way as you and your team navigate prompt payment, but preparation will make that curve a bit smoother.
Written by Kimberly Aitken, CPA, CA, Co-Leader of RLB LLP’s Construction Team. Contact her at 519-822-9933 or visit www.rlb.ca.