Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 12 - Evidence - February 2, 2017
OTTAWA, Thursday, February 2, 2017
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-224, An Act respecting payments made under construction contracts, met this day at 10:30 a.m. to give consideration to the bill.
Senator David Tkachuk (Chair) in the chair.
The Chair: Good morning and welcome, colleagues, invited guests and
members of the general public who are following today's proceedings of the
Standing Senate Committee on Banking, Trade and Commerce, either here in the
room or listening via the web.
My name is David Tkachuk and I am the chair of this committee.
This morning marks our first meeting on Bill S-224, An Act respecting
payments made under construction contracts. The bill was read a first time in
the Senate on April 13, 2016, and I am pleased to welcome its sponsor, Senator
Donald Neil Plett from Manitoba, who is now also a member of our committee.
Welcome, Senator Plett, and thank you for appearing before us today as the
bill's sponsor, along with Mr. Banfai, a lawyer with McMillan LLP, appearing as
an individual today.
Please proceed with your opening remarks. Then we'll go to a question and
answer session. Following this, we will briefly suspend to welcome a second
panel of witnesses on this bill.
Senator Plett, please proceed.
Hon. Donald Neil Plett, sponsor of the bill: Thank you very much,
chair, and thank you, colleagues, for this opportunity.
Many of my remarks today, you may well have heard at least portions of that
as I spoke to the bill in the Senate, and I will be repeating some of that. I
apologize for those of you who have heard this.
As the chair has said, with me today is an experienced construction lawyer
who is instrumental in the drafting process, Mr. Geza Banfai. He will be here to
answer any legal or jurisdictional questions that may arise in the questions
that you have.
Again, it is a pleasure for me to be here today and to present to you a bill
that has been a long time in the making. The chair said April 13, 2016.
As you may know, the biggest issue facing the construction industry in Canada
today is the issue of delay in payment. It is difficult for those working in
virtually any other industry to fathom not getting paid for completed work
without any proper legal recourse. However, this has become the sad reality for
trade contractors across the country.
There are systemic delays in remitting payments down the subcontract chain,
even when valid invoices have been submitted, where there is no dispute that the
work has been performed according to the contract and where the progress claims
have been certified.
This problem is not unique to Canada. However, other jurisdictions have
enacted legislation to counter systemic delays in making payments to
subcontractors. Virtually all U.S. jurisdictions, including the federal
government, have adopted prompt payment legislation in private sectors. The
United Kingdom, Australia and New Zealand have also enacted prompt payment
legislation. It is Canada that is the outlier.
What sets the construction apart from other industries is the construction
pyramid structure on large projects. In federal government work, the federal
authority is the top of this pyramid. The federal authority tenders the
construction work to a general contractor or prime contractor. This is the party
who enters into the contract with the federal authority to complete the project.
More often than not, the prime contractor will then subcontract various
segments of the construction project to specialized trade contractors.
Typically, these trade contractors perform upwards of 80 per cent of the actual
construction work. Also, on most of these projects, trade contractors either
subcontract from a general contractor or they may sub-subcontract from another
trade contractor. As small- and medium-sized business owners will understand,
trade contractors' access to bank credit is limited and their dependence on cash
flow is high. Trade contractors' revenues are subject to unpredictable delays
without any flexibility on their payables.
Payments to the Canada Revenue Agency and to the Workers Compensation system
must be paid monthly without delay, and wages need to be paid weekly or
bi-weekly. Payment for materials and equipment rentals must be made within 15 to
The fundamental cause of the late payment problem is the unequal bargaining
power between contractors and their subcontractors. Contractors will force
subcontractors to accept late payments as part of the cost of doing business.
Contractors can do this because they control the flow of the work. Most trade
contractors depend for their survival on subcontracting either from a general
contractor or another trade contractor. No contractor can afford to be struck
from the bidders' list.
Public Works has recognized that there is indeed a problem and thus have
tried a series of administrative measures in an attempt to solve the problem,
but unfortunately none of them has worked as they do not get to the heart of the
For example, contractors are required by Public Works to submit a statutory
declaration with each invoice swearing that all payment obligations have been
met. There are two difficulties with this remedy. First, these declarations are
retrospective. They do not prevent future payment delays. Second, if a payment
is withheld as a result of a dispute over performance, a statutory declaration
can be submitted, since technically the withheld payment is not a required
payment pending resolution of the performance dispute.
Currently, if a contractor is not paid, they have absolutely no recourse.
They cannot pull off the job. They cannot collect interest. Their hands are
tied. They are some of the hardest working people in our country and they are
going bankrupt and losing their businesses. This cycle has to stop.
The Canada Prompt Payment Act contains measures that will finally put an end
to this systemic problem when it comes to federal construction work. The bill
stipulates that the government institution must make progress payments to a
contractor for construction work on a monthly basis or at shorter intervals
provided for in the construction contract.
Likewise, the contractor must pay the subcontractor and the subcontractor
must pay any subsequent contractor on or before day 20 following the latter of
the last day of the monthly payment period or the receipt of the payment
The bill also accounts for milestone payments where, if a general contractor
enters into a contract with the federal government that authorizes milestone
payments rather than progress payments, written notice of any milestone payments
must be communicated to all parties down the contractual chain.
In my view, the most significant provision proposed in this legislation is
the right for unpaid contractors to suspend work. The absence of this provision
has been raised with me time and time again by small business trade contractors.
This is an important recourse for trade contractors who have not been paid, and
I am thrilled that this right will now be explicit upon passage of this
legislation, in addition to the right to terminate a contract or the ability to
collect interest on late payment.
The bill also provides for a comprehensive dispute resolution process as well
as the right to information for contractors and subcontractors involved in any
Most construction work that happens in Canada occurs outside of federal
projects, meaning that this legislation will only solve a part of the problem.
However, provinces are moving forward on implementing similar legislation.
The Reynolds report in Ontario on this topic has recommended that the
province enact comprehensive legislation. I was thrilled to see that the
recommendations of the commission largely mirror the proposals in this
legislation. Ontario and Quebec have both committed to introducing prompt
payment legislation in the spring of 2017.
When the United States enacted the legislation federally, it did not take
long for the individual states to follow suit. It is my hope that enacting this
legislation will have a similar ripple effect on the Canadian provinces, meaning
every construction worker in Canada will be paid on time for the work that they
Colleagues, this is a non-partisan issue. People should be paid for work that
they have completed, and they should be paid on time. This is the biggest
problem facing the construction industry in Canada, and we finally have the
opportunity to fix it. Let's stand up for small-business owners and hard-working
Canadians in the construction industry.
Before I conclude, I want to point out that since tabling this bill I have
worked with the National Trade Contractors Coalition of Canada to clarify
language in a couple of areas, and I will be submitting, before clause by clause
so that you have them on time, some very minor amendments that really clarify
some of the wording in the bill. Those amendments do not change the substance of
the bill but simply clarify a few provisions to ensure certainty in their
application. As I said, these amendments will be distributed to members in
advance of clause by clause.
Chair, those are my remarks, and I look forward to answering any questions.
The Chair: Did you have comments, Mr. Banfai, or will you just be
there for questions?
Geza R. Banfai, Lawyer, McMillan LLP, as an individual: I am just here
for questions, senator. Thank you.
Senator Massicotte: Thanks to both of you for being with us this
morning. Like all of us, I'm trying to understand what the issue is, so bear
with me if the questions are simple.
From my experience, I have been involved more as a developer with many
contractors and subcontractors. I think I'm somewhat aware of the issue,
particularly in Montreal and Toronto.
I think as you said, Senator Plett, the significant issue is the unequal
leverage of a GC compared to the subcontractors. There are 20 subcontractors for
every GC, and the cash goes through the GC first before it goes to you.
That is a market issue and will be very hard to correct through legislation,
I expect, but I'll come back to the question of how this changes the negotiating
power of both parties.
We had a chance to discuss this yesterday, and my understanding of what you
are saying is the issue is not the client, not the government, because there are
always a lot of issues, as you know. The client says you didn't do it for plans
and specs. There are some delays and disagreements so they don't pay. That's
hard to legislate, and you say you're not dealing with that. You're dealing with
the client. The federal government does pay the GC as appropriately approved by
the parties, including the architect, but you're saying the problem is the GC
keeps the cash in spite of the fact he got the cash. Obviously cash is king and
he gets interest on it, and he doesn't pay the subtrade, even if the client
approved the work.
Having said that, my understanding of the law in most provinces and most
American states is that if that occurs the payment that is received by the GC is
legally trust funds. It's not his money. He has the legal obligation to pay the
subtrades. As all the approvals have been obtained, he has a legal obligation to
pay the subtrades. Trust funds are a serious issue. It's not a simple argument,
a commercial argument; these are monies that don't belong to him. It's nearly
equal to theft.
So behaving in such a way, the GC has done something very wrong morally,
which is the argument you made, but also legally wrong, but given his sense of
power and given his sense you need him for the next job and that's your
livelihood, the market says that subtrades don't have much to do, so they bitch
and complain. They don't get paid, but it doesn't change things.
How will this legislation change that relationship and get better results?
Already he's in default. Already he's acted illegally and used trust funds for
his own purpose, which is a very serious issue. Why would additional legislation
correct that already obvious problem?
Senator Plett: Thank you, Senator Massicotte. I was hoping you would
ask that question because we did discuss it a little bit yesterday, and I'm
happy to explain.
You're absolutely right. When a contractor holds up my money, money that the
owner has paid him that is rightfully mine, he is breaking the law.
We are not asking for any monies to be paid that have not been certified. Not
only before the owner, before the federal government will pay the general
contractor, the architect needs to certify the progress claim; the different
engineers need to certify the progress claim. I was a mechanical contractor, so
there is a mechanical engineer. He has to certify that progress claim,
electrical engineer, so on and so forth.
These are only certified payments that we're talking about. The general
contractor pays General Contractor Z for the work that has been certified and
completed and Contractor Z decides to either collect some interest on it or use
that money to deal on another project. You're right it's illegal and I can take
that person to court. After being in court for a year or so, I'm sure by that
time he will have paid me anyway, and much as I appreciate people like Mr.
Banfai being here today, I don't really want to give them what I should be
putting into my bank account to sue somebody for the money that is rightfully
By legislation, rather than me fighting with the contractor and getting a bad
reputation with the contractor, this legislation says I can suspend work.
Right now if you aren't paying me and I pull off the job, you can literally
hire somebody else, my competition, to come in and start working tomorrow. I
think they have to give 24 or 48 hours' notice, and they can replace me on the
job and start working on that job. Of course my competition will charge much
more for doing that than I would have charged for it because he's now collecting
somebody else's money.
So right now I cannot suspend work. This legislation will allow me to suspend
the work within seven days. I have to give seven days' notice, but then I can
suspend the work and that will stop progress on that job, which will then tell
the owner, "Listen, this contractor is not living up to his responsibility,''
and the contractor has penalty clauses that will kick in if he doesn't finish
the work on time.
The simplest answer I can give you is that it will allow me to receive and
collect interest on any money that has not been paid. So it's in the contract
that if a general contractor does this, I do not have to continue to work.
Senator Massicotte: Let me go further with that, and I acknowledge
that. But I suspect, Mr. Banfai can clarify, that if that occurred, whereby the
subcontractor did not get paid and the GC used the monies — it's trust monies, I
think — the subtrade would have the right to withdraw because the contractor is
in default of his obligations. Yes, he can hire somebody else, but all those
actions are against the contractual obligations of the GC. The problem is,
again, he's a big boy. He's going to say, "Well, maybe you're right, but I'll
work it out.'' They actually do that.
Am I correct in saying that? In other words, he would have a right to
withdraw from the contract because the GC is in default on the obligation. But
the standard construction contract does include interest already, but the GC
refused to pay for it.
Mr. Banfai: You've raised a number of good issues, senator.
First of all, about the right to suspend, it's actually legally ambiguous in
many cases whether a subcontractor who hasn't been paid has the corresponding
legal right to withdraw his services or even demobilize from the site. He runs
the risk that he himself will be found in breach of his obligation to continue
performance of the work.
There are clauses commonly in construction contracts, in my experience, which
require a contractor to do exactly that. Notwithstanding the existence of a
dispute, he has a legal obligation to continue performance while the dispute is
The right to suspend for nonpayment is at best ambiguous, and in my own
experience, contractors are extremely reluctant to stop work even in
circumstances in which they haven't been paid for months. I recall one instance
in particular where I've had to go to some great lengths to persuade a client to
do exactly that, where in my opinion he was on solid, solid legal ground, and
even in that event he stopped work with great reluctance. So we have that
You began by asking how would this change the relationship, and in addition
to what Senator Plett has said, is the behaviour you've described illegal
contractually? Well, of course it is. Is it a breach of trust? In federal work
that's questionable. The trust provisions that apply in, for example, Ontario's
Construction Lien Act don't apply to federal projects. So it's highly debatable
whether these trust obligations apply on federal projects. I don't think they
do. But that's not really the point.
I think it's pretty clear to the industry that the court system is generally
inadequate to the task of enforcing the kinds of legal obligations that we're
talking about here. Litigation is too expensive. It's too prolonged. Many people
in the industry don't want to go there for very good reasons. As the senator
indicated, if I go to court a year from now, I might get the money. I will pay
the lawyer a lot of money. I think you're being too optimistic. Litigation, in
my experience, is a multi-year endeavour, and meanwhile the victim is out his
One of the other things that this bill seeks to do, as does the Reynolds
recommendations in Ontario, is to fix that problem by introducing a system of
adjudication, which seeks to get quick decisions on an interim binding basis. We
can talk about this in detail if you want, but it seeks to avoid this problem of
disputes that are prolonged over a long period of time and causing what Reynolds
calls a gridlock in the payment flows. It's a rough justice but an effective
system for dealing with the kinds of issues which typically arise.
Senator Massicotte: I buy all that. In my experience that's accurate.
Look at the current President of the United States bragged about it. Some real
estate owners don't pay and don't pay and years from now they get a discount.
It's bad practice. The problem is it relates to the relative negotiating power
of each party and is dependent on one or future jobs. How does it change that?
Adjudication is good, but the big people who are wrong and abuse their rights
all the time are forgiven every time because the contractor needs him for the
next job. He wants to be in the good books. I know the law is there. I defend
it. I was defending it before, but don't you dare do what you're doing or you
won't get another job from me. How do you correct that?
Senator Plett: You will not correct threats that any one person will
make, but this legislation will allow me to just simply suspend the work. It's
written into law now, and so I do not have to start anything. That is the most
significant factor. Clearly, every general contractor also wants to maintain a
reputation. If two or three contractors started pulling off jobs because a
general hasn't paid them for certified work that would be a much sullied
reputation. Will this legislation solve every problem? No. It will solve this
problem at least to a large extent.
Senator Black: Senator Plett, you should be congratulated on the
initiative you've undertaken here, because you've identified a problem that
needs to be addressed. I do have some technical questions that I think would
best be addressed to counsel, if I could.
What we're talking about here is legislation aimed at creating a remedy,
Mr. Banfai: Yes.
Senator Black: Stripping it all away, it is giving aggravated
contractors an additional remedy to whatever they currently have available to
Mr. Banfai: Yes, in addition to a right of monthly payment.
Senator Black: Building on what Senator Massicotte has to say, if I'm
an aggravated contractor, I could file a lien. Is that effective?
Mr. Banfai: No, not on a federal job you can't.
Senator Black: I can't do that.
Mr. Banfai: You can't do that.
Senator Black: That's interesting. Senator Plett indicated there are
certain administrative procedures that I could take advantage of. What are they?
Mr. Banfai: Well, as I recall from his comments, he was talking about
the administrative measures that PWGSC was implementing and he mentioned, for
example, the use of statutory declarations. The senator accurately summarized
the problems with that.
Senator Black: So you believe that whatever those administrative
remedies are aren't effective?
Mr. Banfai: They don't work.
Senator Black: That's exactly what we want to know. What about the
remedy of injunction? Would that be available to a subcontractor?
Mr. Banfai: Well, injunction is an equitable remedy. It is designed to
prevent harm or mandate behaviour.
Senator Black: But not to be paid.
Mr. Banfai: It is very expensive to get, and legally it's more
complicated than an ordinary action. Injunctions are rarely used in
Senator Black: Is that right?
Mr. Banfai: Yes, and for very good reason. They're simply an
inappropriate resolution to the kind of problem we have.
Senator Black: So there is a basket of remedies, but basically they
are not effective. We need another tool. That's what you're saying to us.
Mr. Banfai: Yes.
Senator Black: I don't understand. What if there is a legitimate
problem with performance? I'm a painter and I paint the wrong colour. I still
want to be paid. If you don't pay me for the wrong colour, I'm going to walk off
the job. How do we deal with that issue?
Senator Plett: I think I explained that. This is for certified work.
So I'm the plumbing and heating contractor. The mechanical engineer has to
certify the work. If he doesn't certify the work or she doesn't certify the
work, I've got no claim and the owner will not pay the general contractor.
Senator Black: That's helpful. Thank you very much, senator.
Can you generally characterize the economic consequences to Canada of this
Senator Plett: I think we have, and I had that number. I don't have it
with me here right now, but I did have that number when I made my comments in
the chamber. I think we have somewhere around 1.25 million people working in the
construction industry today. A family company just closed their doors in your
province of Alberta. This is a family in the construction industry. They closed
their doors in Alberta last week and laid off 150 people. Those are the economic
Senator Black: Because of this type of problem?
Senator Plett: Because of this type of payment problem.
Senator Black: I want to understand the colour and the magnitude here.
Is this a rare problem? Is this a regular problem?
Senator Plett: It is not a rare problem at all, Senator Black. Trade
contractors are typically running shops that they may employ 10 or 15 or 20
people. Their cash flow is limited. Typically in construction, the person who
makes the biggest mistake at the tender stage is the one who gets the job, so
he's starting off behind the eight ball in trying to make money. Then the
architect or engineer has missed something and the contractor must find a way to
make that up. At the end of the day, when he's found a way of doing all this and
having a few dollars left over, he has to fight for that. We're going to hear
from people in the supply industry. The supplier then wants payment after 30
days. Workers' Compensation says you pay. My employees expect their paycheque
every second Friday, or whatever the arrangement is. So, no, this is not a rare
problem at all.
Senator Black: That is what I wanted to understand. Thank you very
The Chair: To clarify, if you go from a contract with Public Services
to a general contractor to a plumber, what happens? Is it rare or does it happen
that the Government of Canada itself — Public Services — doesn't pay? What takes
place then? What if they are late in payment and instead of 30 days they may
take 45 or 60 days?
Senator Plett: Senator, they are also part of this legislation. If the
work has been certified, they are obligated to pay as per the contract once the
work has been certified; it's the same as a general contractor.
However, I do want to state emphatically that the culprit, typically, in this
issue is not the federal government. I really believe that they are paying 90
per cent of their bills on time.
The Chair: Within 30 days?
Senator Plett: Yes, or whatever the contract says. It might be
milestone payments, but they pay as per contract.
The Chair: I have a long list of questioners here, and we have another
panel coming up, so govern yourselves accordingly, senators.
Senator McIntyre: Thank you both for your presentations, and thank
you, Senator Plett, for sponsoring this bill. I have two short questions, mostly
for clarification purposes.
As I understand, the bill accounts for milestone payments. On that issue, am
I correct in understanding that the government institutions and supervising
contractors and subcontractors could only make those milestone payments in
relation to their subordinate contracts, if permitted by the prime contract with
the government institution?
Mr. Banfai: That's the idea.
Senator McIntyre: In other words, it must be permitted by the prime
Mr. Banfai: Yes.
Senator Plett: And everyone needs to be notified down the contractual
chain. If the prime contractor is signing a contract that has milestone
payments, everyone down the contractual chain needs to know that prior to them
signing their contracts.
Senator McIntyre: The bill also allows contractors to collect interest
on a late payment. Do government institutions currently pay interest or damages
for delayed payments to construction workers?
Mr. Banfai: I don't know.
Senator Plett: In my experience, Senator McIntyre, I have been told by
government officials we don't pay interest; we collect interest if you don't
make your payments to the Canada Revenue Agency on time, and so on. It was more
in relation to that. This, again, would apply more to the general contractor or
a subcontractor. This is not necessarily just a general contractor that is the
culprit here; it may be a mechanical contractor who is not paying his insulation
contractor, so it could be anywhere down the chain.
Senator McIntyre: The important point is that the bill corrects that
Senator Plett: Yes.
Senator Marshall: I know the legislation provides for remedies, but is
the primary objective to get the bills paid on time?
Senator Plett: That is correct.
Senator Marshall: Senator Plett, in your opening remarks you spoke
about how the government has put in certain administrative procedures to try to
fix the problem, but they haven't. This question is probably for departmental
officials, but I will ask you.
Can they tell you, now, how many payments go over, and provide statistics
regarding how long it takes them to pay the bills once they are certified? Can
they say, "We paid 90 per cent of the bills 180 days after certification''? Are
there any precise statistics? If the objective is to get people paid on time,
you would almost need to have something in place to measure it. How bad is the
problem? How extensive is it now?
Senator Plett: Thank you, Senator Marshall. As I said, typically, the
government is not the culprit. They pay most of their progress claims on time, I
believe. The culprit is down the contractual chain.
I can't give you what the government averages, but I can tell you the average
of what payments are made. In 2007, the average duration of a receivable in the
construction industry — it was already bad then — was 62.8 days or 9.97 weeks.
By 2012, that average had increased to 71.1 days, or over 10 weeks. The Ontario
average is 63 days; the Quebec average is 79 days, and it goes on. In Alberta
the average is 78.6 days.
Senator Marshall: So it is measured.
My last question is with regard to the interest and is a follow-up to
something Senator McIntyre asked.
Regarding the rate prescribed by regulation, what were you expecting to see
in the regulations? That could range from 0.25 per cent, or 0 per cent, to 10
per cent. What were you looking at?
Mr. Banfai: It is up to the regulation, obviously.
Senator Marshall: What would you like to see?
Mr. Banfai: I would guess that a regulation would probably be crafted
to tie an interest rate to the prevailing bank rate, which is what is done under
Ontario's Courts of Justice Act, for example. The interest rate
fluctuates with the bank rate.
Senator Marshall: It says that applies if the construction contract
does not provide for a rate, so regardless of what rate is specified in the
construction contract, you would like to see that rate paid. If it is a rate of
24 per cent, you would like to see the 24 per cent paid?
Mr. Banfai: If the construction contract stipulates a rate, that
should govern. If it does not, the regulation should prescribe, effectively, a
Senator Moncion: I have two quick questions. First, this legislation
would correct or allow interruption of work. That's what you were saying, so how
does this legislation correct the situation where the GC, or general contractor,
gives the work to another subcontractor just to get the work done?
Senator Plett: They would not be allowed to do that under this
legislation. If my company suspends work, the general contractor cannot replace
me. This has to be dealt with. That is what this legislation deals with, if I
understand your question correctly.
Senator Moncion: Yes, but it goes further. How are we going to prevent
that from happening? People in construction know other people that can do the
work. There is nothing that prevents them from going to another provider and
saying, "This guy is not doing the work. I have to finish this job so I can move
on.'' How does this legislation correct a situation like that?
Mr. Banfai: It doesn't. In the circumstances you have outlined,
senator, if someone has failed to pay a subcontractor and the subcontractor has
properly suspended in accordance with the statute, the general contractor then
goes out and gets somebody else to do the work. In my view, then, that general
contractor is running a very serious risk of being found liable not only for the
unpaid bills to the subcontractor that suspended his work, but also for damages
for breach of the subcontract, the damages consisting of that subcontractor's
lost profits for the balance of the work.
Legally, the general contractor runs a serious risk of having been found to
have repudiated the subcontract by getting other forces in, particularly if the
general contractor did that in the face of the processes and remedies that are
prescribed in this legislation that were otherwise designed to deal with the
very problem that caused the nonpayment, if there is a real problem. For
example, if there was a legitimate dispute, or even a quasi-legitimate dispute,
between the general contractor and the subcontractor, the legislation
contemplates a system of adjudicating that dispute in a very short period of
If, in the face of that remedy, which is clearly available, the general
contractor ignored it, terminated the subcontractor and brought in somebody
else, in my view that would be a very risky move for the general contractor.
Senator Moncion: I agree, but if you want the job done, some will say,
"Well, I can fix this down the road, because by the time it gets to court and is
disputed, it might be a long time.
You were saying earlier, Senator Plett, that a lot of these disputes are
corrected outside of the legal system, if I heard you correctly. There are
arrangements that are being made between these people at some point. They work
Mr. Banfai: Your question is a really good one because it gets at
something that we haven't really talked about here yet and that is how
legislation like this changes behaviours. There is what is written here, and
then there is the response of people, knowing that the law says what it says.
The evidence that I have read, particularly in the U.K. where they have had a
system of adjudication, to cite that example, for almost 20 years now — and this
is anecdotal — has been that, where people know that if they don't behave
themselves and deal with their issues in a timely, responsible fashion, within
30-days there is going to be somebody deciding this one, they behave
Senator Moncion: Yes, I agree.
Mr. Banfai: To my mind, that is perhaps the most powerful impact of
legislation like this. It isn't so much what is written on the paper, it is how
it influences behaviours in a positive and constructive way.
Senator Moncion: If we want to influence behaviours, can we put
something in the legislation that will incite people to change behaviour? If you
don't put those 30-day clauses in, you will see this wheeling and dealing going
on, and it's not necessarily going to correct the problem.
Mr. Banfai: The legislation does contain a number of things that
incite the kinds of behaviours you are talking about: first, an obligation to
pay monthly; and, second, an obligation that, if you are going to short pay
someone downstream of you, you must give very prompt and timely notice of that,
an obligation to pay amounts not in dispute, an obligation to pay interest on
overdue payments, a right to suspend, a right to terminate, in extreme cases, a
system of adjudication.
My concern about going much further is that you begin to bump into the
principle of freedom of contract, and that's a difficult subject.
Senator Moncion: It is.
Mr. Banfai: My own view, for what it's worth, is that the legislation
achieves a very nice balance, actually, between the freedom of people to
contract with one another on terms that they mutually agree upon and some basic
rights and obligations that should govern all contracts.
Senator Moncion: What are the measures in place to keep the government
from allocating contracts to general contractors who don't pay their people? Is
there something in the legislation there that will prevent government staff from
allocating these contracts again to contractors who don't pay?
Mr. Banfai: There is nothing in the legislation that prohibits the
government from contracting with a deadbeat general contractor. One would hope
that the officials would naturally seek to avoid that because there are certain
practical difficulties when you are contracting with what I would call a
deadbeat. Your jobs don't get done on time. You are constantly dealing with
complaining subcontractors and suppliers who are complaining that they don't get
paid. The jobs are not done to a good, high standard; the costs of
administration go through the roof. In my experience, there is a natural sort of
way of dealing with that problem that you don't need to legislate.
Senator Plett: For many tenders, you actually need to qualify in order
to bid on the work. I think that, in very short order, you might not be a
qualifying contractor anymore.
Senator Wetston: You have covered a lot of territory, and I know we
don't have much time. I was actually going to pursue the behavioural issue. I
think you have pretty well addressed that issue. The point that I would raise is
that it's probably easier to legislate bad behaviour, but it's really hard to
legislate good behaviour. You probably responded to that, and I just wanted to
pursue that a little bit with you. I think you describe it as a good balance.
Obviously, people should get paid for the work that they do. We expect that. We
have remedies to deal with that. You've talked about some of them. They are
often protracted, and access to justice is challenging.
In achieving this balance, where does the government fit into this in the
sense that they see all of this activity occurring? Obviously, pursuing this
bill is important from that perspective, but, when they see this kind of
activity, is their only response legislation?
Mr. Banfai: Well, I don't know if their only response is legislation,
but certainly, apart from everything else that we have talked about this
morning, legislation like this, in my view, signals, in a concrete way,
leadership by the government, in this case the federal government, on an issue
that, as the senator mentioned, is notorious now across the country. There is a
culture of slow payment that has set into the industry, and we are trying to fix
The federal government, being Canada's largest public owner, is in a unique
position of leadership on this issue. This kind of legislation, I think, feeds
into that role as a leader in effecting change in this culture of slow payment.
Senator Wetston: I take it that is part of the reason that Quebec and
Ontario are potentially considering similar legislation?
Mr. Banfai: Yes.
Senator Ringuette: Where is Senator Plett?
Mr. Banfai: We have lost our witness temporarily.
Senator Ringuette: Maybe he doesn't want to answer my question.
The Chair: Hopefully that is not the reason.
Senator Ringuette: Hopefully so because I wanted to make a comment
that, although I don't share many of Senator Plett's opinions, I certainly share
his support for prompt payment of Canadian workers wherever they are.
The Chair: He must have heard you.
Senator Ringuette: I have to repeat myself, Senator Plett. I was
saying that, although I differ from your opinions on many issues, I don't differ
with regard to the need for our workers to be paid. For our workers to be paid,
the employer needs to be paid for the work done. The main objective here is
We have to bear in mind the issue of suspending or terminating work, and I
think that is not the ideal situation. But there are three different options in
your bill. The first one is to suspend until there is payment. The second one is
to terminate the job, and the third one is to go to the dispute resolution,
which, from my perspective, should be the first venue to engage in.
Mr. Banfai, although you have indicated that the dispute mechanism that you
are proposing in this bill has a timeline, there is no timeline in the bill. I'm
concerned about that because it could take anywhere from 6 months to a year to 2
years to 5 years. That is a concern because we will have one shot at this issue
for maybe the next 5, 10 years. Yes, we need to have the federal government and
federal legislation play a leadership role in it. Why can we not have a very
specific and tight timeline with regard to the dispute resolution mechanism?
Mr. Banfai: You raise a good question, senator. It is certainly not
the intention to allow or contemplate the kind of prolonged dispute resolution
that we presently have in the ordinary courts. We are trying to fix that
The draft that is before you presently, you have noticed, leaves these
details to be dealt with by regulation. That's quite deliberate because the
mechanism to work out how an adjudication system might work is itself quite
complex. Reynolds in Ontario addressed the same question and came to the same
conclusion. He is advocating a system of adjudication but leaves the details to
be worked out by regulation.
You began your question, though, with something that the draft doesn't
include but perhaps should. Namely, that is tying a right to suspend or
terminate to the dispute resolution and forcing people to go through the dispute
resolution adjudication mechanism first. That is a good point. I note that
Reynolds in Ontario has recommended just that; that the right to suspend happens
only after an adjudication decision.
Senator Ringuette: Yes, and I read the document twice to make certain
and thoroughly understand the recommendation that they have put forward to the
Government of Ontario. They are recommending a specific timeline with regard to
the process, as per their study, what happened in the U.K., Ireland, Hong Kong,
et cetera. In the study they did across the countries that have such a
mechanism, the process is anything between 10 days and four months, which can be
reasonable to settle these types of issues. For Ontario, they are specifically
recommending a maximum 40-day process.
Why can we not tighten up the opportunity for subcontractors to be paid?
Instead of suspending and being replaced by another subcontractor or
terminating, if the option for adjudication would have a strict timeline to
provide prompt payment, prompt resolution of the issue, wouldn't that be better
for the industry?
Mr. Banfai: I have made the note. I think that's a good point,
senator. It's worth considering.
Senator Ringuette: I would be happy to work with Senator Plett and
with you, sir, with regard to putting this forth. Being a 30-year
parliamentarian, most of the legislation we see once every 10, sometimes 20
years to review. My perspective — and you have been working on this for a long
time — is that we have to get this right with the best option possible for the
subcontractors and the workers.
Senator Plett: Thank you, senator. As Mr. Banfai has suggested, he has
made a note. Why don't we discuss that, and maybe even over the course of the
weekend, have discussions with you? I fully support what you are saying. We want
to get it right. Certainly in light of the Reynolds report and recommendations,
we need to get it right without delaying this too much longer, so thank you.
Senator Enverga: Thank you for your presentation. Most of my questions
were answered, so I would like to congratulate you and thank you for sponsoring
Senator Plett: Thank you very much.
Senator Day: I have listened to Senator Plett's presentation of this
legislation in the chamber, and I am glad we are having the hearings now to
clarify some of the doubts that I have.
I think, Mr. Banfai, you touched on part of my concern when you started
talking about the marketplace. Most of us in this room would tend toward a free
market system, and see government interfering with that free market system only
in instances where it's necessary to determine a somewhat even playing field.
We are all familiar with organized labour and the fact that at one time
unions were not allowed. But it was deemed because there is such an imbalance
that freedom of association and the forming of labour unions allowed for that
balance to be created and a set of rules all grew up around that. Are we in a
similar situation here where there is such imbalance that we need to define a
scheme that will help change the attitudes and the way the marketplace is
Mr. Banfai: I think so. When you look at the statistical evidence of
how payment delays, number of days outstanding ARs has been growing in recent
years, particularly compared to other industries where it has remained
relatively constant, coupled with the survey evidence and anecdotal evidence,
one is driven to the conclusion that there is something wrong with the market.
The senator has talked about the inequality of bargaining power that exists,
which I agree with. I think there is an inequality of bargaining power. Yes, I
think we do have a kind of structural problem with the economy — at least the
economy of the construction industry — that needs correction through legislation
Interestingly, most other common-law jurisdictions in the world seem to have
come to the same conclusion along the way.
Senator Day: I think that is convincing, when you see provinces and
other countries coming forward with similar types of legislation, that there is
obviously something going on here that needs to be rectified. I think that is
why Senator Plett has presented this.
Mr. Banfai: Absolutely.
Senator Day: Then I started asking, could we achieve the stop work
aspect? Senator Plett said that is an important part of this and Mr. Banfai, you
described it like a strike. The company can still continue to operate but it's
risky and there are potential fallouts from that. In the same way here, if a
subcontractor withdraws, the contractor can continue the business but there are
a lot of risks involved that may persuade that contractor not to proceed.
That's one of the provisions, but I was wondering about milestone payments.
Is there a problem with normal contract provisions in standard contracts?
Especially in the federal government, there are a lot of standard contracts now.
Is there a problem with the provision for milestone payments in the existing
scheme of things?
Senator Plett: Senator, there is no issue that we see with milestone
payments being part of a contract. The bill then enshrines in legislation that a
contractor needs to tell a general contractor who needs to tell all the people
down the line that there are milestone payments. It might be a job that you
simply pay upon completion of this much of the work; a quarter of the work is
done and you get a lump-sum payment. That's fine if that's part of the contract,
and everybody down the chain knows that's part of the contract, as opposed to
thinking "I'm getting paid in 30 days'' and then 30 days later, that person
realizes there is a milestone payment and realizes they're not getting paid for
another three months.
So the milestone payment isn't the issue. The legislation doesn't speak
against milestone payments. It simply says that everybody needs to know prior to
signing the contract that there is a milestone payment.
Senator Day: If somebody contracts contrary to the contract that he or
she has, that is going to pose a problem for that person anyway. Regarding
dispute resolution and demand for payment provisions, are all those things
necessary as a result of the stop-work provision in here? What has triggered a
whole scheme when you were looking at one aspect of all of this?
Senator Plett: I think I'll let Mr. Banfai answer that. Clearly, all I
cared about was that people get paid on time, whatever mechanism that we can use
to do that. We all know that there will be lawyers involved at some point in
this dispute, so we should at least have some help in making sure things are
drafted properly. As Senator Ringuette has already pointed out, there may be
just one issue that can be prevented by not putting the cart before the horse.
Aside from that, I'll let Mr. Banfai answer further if he wishes.
Mr. Banfai: I'm not sure I understand your question fully, Senator
Senator Day: We've run out of time, so I'll be asking this again, I'm
sure, but the real essence is this: If what we were looking for was the right to
stop work without exposing the subcontractor to potential breach of contract for
stopping that work, do we need to define an entire regime that talks about
dispute resolution, progress payments and how you make your demand for payment?
Do we need to do all of that?
Mr. Banfai: With respect, I think the premise of your question is off.
We're looking for clarification on the right to suspend work, but I would not
say that that is the primary objective or the only objective. We're looking for
an obligation to make monthly payments.
Coupled with the other remedies, it is a holistic set of obligations and
remedies that, together, are designed to expedite cash flow down the
construction pyramid and ultimately change what I've called this culture of slow
payment. It's a set of rights and remedies. I think it's a mistake to focus only
on one to the exclusion of the others.
That's what I would say to you in response.
Senator Day: The subcontractor is financing the project here.
Mr. Banfai: The subcontractor is financing the project.
The Chair: Thank you, Mr. Banfai and Senator Plett. Your testimony was
really interesting and very good.
We are continuing our examination of Bill S-224, and I'm pleased to welcome
our second panel. From Canada's Building Trades Unions is Christopher Smillie,
Policy Analyst, Government Relations and Public Affairs, Canada's Building
Trades Unions; from the Canadian Institute of Plumbing and Heating, Ralph Suppa,
President and General Manager; and from Canadian Roofing Contractors'
Association, Bob Brunet, Executive Director.
Thank you for being with us today. Please proceed with your opening remarks,
beginning with Mr. Smillie, to be followed by Mr. Suppa and Mr. Brunet. Keep it
short and succinct, and we'll have a lot of time for questions.
Christopher Smillie, Policy Analyst, Government Relations and Public
Affairs, Canada's Building Trades Unions: I asked my daughter on the way to
work this morning what I should say at this committee, and she said, "Nothing
that's not on the page.''
I would like to say good morning to the chair, honourable senators and fellow
witnesses — today, our contractor partners. We're happy to be called upon to
talk about this legislation. We think it will set an important precedent in one
of Canada's most important industries.
Construction represents more than 11 per cent of GDP; it changes
month-to-month. It employs over 1.3 million Canadians, an important slice of
Canada's middle class.
The building trades in Canada represent approximately 500,000 members in
every province and territory. Just to provide a bit of context, we're still
experiencing pesky unemployment in our sector. Regional and cyclical challenges
exist, but it's still too high in some areas.
Our members are eagerly awaiting the large infrastructure program as a way to
stimulate the economy and get back to work. This bill and this committee's work
might be important in that context.
The federal government has stood alongside our members on a number of
important issues, and, as the country's top purchaser of construction services,
the federal government can show leadership in how they deal with prime and trade
contractors across the economy.
In construction, just to give you a bit of context, all activities and the
money revolve around bids, market forces and people. Most everything is
organized by craft. Electricians rely on electrical contractors to win bids from
general contractors, and the general contractors win bids from the purchasers of
Members from our hiring halls get dispatched when a signatory trade
contractor wins a bid. Usually, our members find out the day the work begins or
maybe the day before. The member goes to the job site, does a safety course or
briefing and starts beginning the end of his work there. All work in
construction is temporary and transitory. Usually, members work for four or five
or more contractors in a six-month period. So getting paid, the topic of today's
discussion, is important.
Our unions generally do a good job, partnering with our employers, to ensure
a smooth process for the worker in terms of paycheques and the pooling of
benefit plans, but if our employers don't get paid by their customers, the risk
to workers increases significantly. If trade contractors don't get paid as per
their contract, it stresses the system, and paycheques could be in the balance.
The ability of workers to go back in time and fight for wages not paid by an
employer is limited at best. It worsens even further if that contractor hasn't
been paid or if that contractor is bankrupt.
There is some protection in federal law for workers currently, under the Wage
Earner Protection Program Act. If your employer files under the Bankruptcy Act,
this process is slow, and you certainly are not first in line for the proceeds
of the liquidation. This program maxes out at approximately $16,000 per worker,
minus 7 per cent.
So a framework to avoid all of this and to ensure that the "money system''
above the worker is fair, transparent and efficient so that everybody can get
paid is a laudable goal. When someone, take for example a government, purchases
construction, there is usually, as we've heard this morning, a long chain of
subcontracting, and each of these companies is reliant on progress payments and
money to move. The only people who have little recourse or ability to do
anything about it are the workers.
In the U.S., I believe there's a 28-day window, if my math is correct, on
federal government jobs or agency jobs after an invoice is submitted by the
general contractor before a trade or a sub or a sub-sub gets paid. That system
has been around since, I think, the early 1980s.
As to the EU, we talked a little bit about that earlier. They went a step
further and enacted a 60-day program in the private sector, so not just federal
government or EU jobs.
At the end of the day, programs like these don't just protect the government,
the contractor or the subcontractors, they provide assurances to the workers who
actually build the projects. They support reliability so that wage earners know
that wages are indeed going to be paid.
Bill S-224 could lead to some improvements at the federal level and encourage
provinces to take a look at the systems and protections in place in their
jurisdictions. There have been some attempts in this country in this regard, and
I know that's moving forward.
So if I had a magic wand on this bill, I would suggest a friendly addition to
create directly something for workers, a process of communication or a process
of appeal or a process of filing directly between the wage earner and their
representatives and the purchaser of construction. So, if I were the federal
government and building a big project or maybe just funding a third of it or a
half of it, as generally occurs, I wouldn't blink an eye at making sure that the
workers who are working on that site are actually getting paid, no matter if
they're my direct employees, as the federal government or the subcontractor's
subcontractors' employees. I wouldn't hesitate to institute this policy if it
were an infrastructure jointly funded by other levels of government as well. So,
if the federal government is paying a third of a major infrastructure project,
why wouldn't the federal government want to know what's happening on that job
This would be a very important verification step for contractors and subs as
well, and this could be worked into the procurement regulations behind the bill,
as was discussed by a gentleman earlier.
So those are my prepared remarks. I'm happy to answer any questions that you
might have once the rounds begin. Thank you very much.
The Chair: Thank you, Mr. Smillie. Next, we have Mr. Suppa.
Ralph Suppa, President and General Manager, Canadian Institute of Plumbing
and Heating: Thank you, Mr. Chairman, and thank you for this opportunity to
be a witness before this prestigious group. And good morning to everybody.
My name is Ralph Suppa, and I am the President and General Manager, Canadian
Institute of Plumbing and Heating. We were founded in Montreal in 1933, and
we're a national not-for-profit trade association, representing over 270
corporate member companies. We are the manufacturers, wholesale distributors,
manufacturers' agents, and allied companies who manufacture and distribute
plumbing, heating, pipe valves and fittings, waterworks and other mechanical
products. We represent an institute that generates over $6 billion annually and
employs over 20,000 Canadians.
The Canadian Institute of Plumbing and Heating would like to go on record
supporting Bill S-224, the Canada prompt payment act, and we congratulate
Senator Plett and the National Trade Contractors Coalition of Canada for their
work on this file.
Late payment is a serious impediment to all of our members, making a trying
economic condition even more difficult and, in some cases, forcing companies to
lay workers off. We believe that the payment status quo is not working. We also
specifically support the provision that would bind the federal government to pay
its bills for completed, certified construction work within 30 days of it being
certified as complete. We particularly support the same 30-day requirement down
the contractual chain, as outlined in the bill.
The institute also believes that the payment status quo is not working, with
payment not being passed on to the trade contractors promptly and without
hassle, causing serious hardships throughout the distribution channel, from
trade to wholesale distributors and, ultimately, to their manufacturer partners.
Wholesale distributors are dependent upon cash flow to maintain a healthy
balance of providing products and services and ensuring manufacturers' payment.
If a contractor is forced into an on-hold position, it has a detrimental effect
on the company being able to continue business on any other projects they are
Generally speaking, the larger mechanical contractors tend to order product
in large quantities, and then the wholesale distributor releases product as they
need it. Wholesale distributors incur significant carrying costs when products
are delayed as they often buy early in order to guarantee product availability
Next, the distributor invoices the contractor at the time of shipping the
product. Standard industry payment terms are 2 per cent 30 days or 2 per cent 15
month following. If you factor in the current 90 or 120 days that has become the
norm and that wholesale distributors have to pay their manufacturing partners on
an average of 30 to 35 days, they also incur financial costs due to the
extension of these terms.
The overall cost to wholesale distributors includes warehousing and inventory
holding costs. Delays in shipping product to the construction site for any
reason will impact this. Extension of financial terms costs: Because of a
non-prompt payment, the variance between the wholesale distributor payment to
the manufacturers and the payment for mechanical contractors can be upwards of
Delays in construction create havoc on product specification changes to
projects as engineers are more like to change the specification if time allows
Subsequently, the wholesale distributor can be left holding purchased product
for a period of time. They cannot return the product to the manufacturer. They
incur significant restocking charges from the manufacturer, which mechanical
contractors rarely agree to pay, and it has been deemed obsolete or discontinued
in the time of the lapse, leaving 100 per cent of the financial burden to the
Changes to project timelines are challenges to track and prepare for amongst
all other daily business requirements as there is a significant amount of
invested time in human capital that is required for project management.
With the passage of this bill, a more concise and structured payment schedule
process will assist the contractor and the wholesale distributor in more
efficiently coordinating product installation and delivery. In consultation with
our members and based on the above issues, we estimate that the financial impact
to our members because of non-prompt payment can be upwards of $25 million
In conclusion, while prompt payment legislation is needed in all Canadian
jurisdictions, this is an important first step in improving cash flow on all
federal projects by legislating that contracts issued by the Department of
Public Services and Procurement and Defence Construction Canada include prompt
payment provisions for all contractors to whom work is awarded.
This would reduce prices for taxpayers through more competitive bids, improve
project completion timelines and lead to an increase in hiring. It is also clear
that the benefits of the Prompt Payment Act would not only be felt in new
infrastructure and construction projects, but also on projects to retrofit or
upgrade existing infrastructure to high levels of energy efficiency. Upon the
passage of this bill, it is our hope that the legislation will act as a catalyst
and positive example for all of the other 13 Canadian jurisdictions.
Mr. Chair, the Canadian Institute of Plumbing and Heating is in support of
the bill with a view to helping make this a very positive, effective and
meaningful bill for Canada's construction industry. Thank you for this
Bob Brunet, Executive Director, Canadian Roofing Contractors' Association:
Thank you, Mr. Chair. Good morning, everyone.
My name is Bob Brunet, and I'm the executive director with CRCA, the Canadian
Roofing Contractors' Association. CRCA was established in 1960 and is a national
not-for-profit trade association representing roofing contractors from across
CRCA members are roofing contractor companies actively engaged in the
Canadian ICI — or the institutional, commercial and industrial — roofing and
related sheet metal contracting business. Our members are also companies
involved in manufacturing or supplying of materials and services used in the
roofing and sheet metal industry.
CRCA is supportive of the National Trade Contractors' Coalition of Canada,
who are championing Bill S-224 along with Senator Plett. Trade contractors are
the businesses that train apprentices, employ journeypersons, make payroll, pay
benefits and pension contributions and actually do the work. CRCA supports Bill
S-224, the Canada Prompt Payment Act.
As a professional association manager, I'm not a contractor. Entering the
construction industry was an eye-opener and required an orientation period. As a
consumer like many of you here, I am very good at purchasing finished products.
That is, I go to a store, I buy a finished product like a TV or clothing. The
transaction is quick: I select the item, pay for it and take it home. I also
purchase services like hydro, cellphone usage and credit through credit cards.
With these services, what happens if you don't pay your bills within the
first 30 days? We incur interest charges. If we continue not to make payments
after 60 to 90 days, we incur more interest charges and possibly suspension and
cancellation of the service until payment is made.
In the construction industry, trade contractors are given plans and
specifications to provide an estimate on the finished product that was designed
by someone other than you. They are asked to submit an estimate on the time, the
materials and the cost to build a complete building or a portion, such as a roof
or HVAC system. The terms of the contract, if you are successful in your
estimate, are dictated by the owner or general contractor. In essence a trade
contractor sells their product and then manufactures it, subject to someone
else's schedule and you get overhead and profit if your estimate was correct.
In the construction of a typical building, trade contractors may be
responsible, collectively, for as much as 80 per cent or more of the total work
to be done under the contract. Success for trade contractors depends on getting
paid promptly by either the owners or general contractors.
Whether or not trade contractors get paid, their invoices keep coming and
must be paid. During the normal course of business, trade contractors must
continue to pay upfront costs related to a particular job. These costs continue
whether or not you get paid and include things like equipment leases; materials;
employee salaries; health, dental and pension benefits; CPP and EI; employer
health taxes; harmonized sales taxes; property taxes; Workers Compensation; heat
and hydro, and the list goes on and on.
In the construction industry, it often takes more than 80 days for trade
contractors to get paid. And once you do get paid, it will most likely be only
90 per cent of our invoices. The other 10 per cent is deemed a holdback and this
is only paid once the entire onsite work — not just your work — is deemed fully
Many of our members have receivables that are over 90 days and this can
seriously hurt their cash flow. It is too easy to tell trade contractors to go
and access their line of credit to help with cash flow from your financial
institution. However, most financial institutions will only recognize and extend
credit on accounts receivables that are less than 90 days.
The issue is not necessarily only about general contractors not being paid by
owners in a timely fashion. It is also about general contractors not paying the
subcontractors or the trade contractors promptly for service they performed on a
project. This happens when both parties are satisfied with services delivered,
but payment is nonetheless unreasonably delayed.
Trade contractors should be paid for work that is certified complete in a
timely fashion. Delays in payment have many negative consequences for small
businesses, workers, families and owners, including the federal government.
Employment is lower because the amount of operating expenses that a trade
contractor can support has been reduced by the payment risk, and fewer
apprenticeships are created because of a lacking willingness to make long-term
employment commitments that are required to recoup those investments in
Payment risk leads trade contractors to make fewer investments in new
machinery and equipment, reducing the long-term productivity in construction and
raising costs overall.
Construction costs may be higher because trade contractors may have
incorporated the risk of late payment by general contractors into their bids,
driving prices higher.
Costs are also higher because increased payment risk reduces the amount of
work trade contractors can afford to take on, thus reducing the bidding pool for
Prompt payment legislation in Canada will provide contractors with the tools
to ensure that their businesses can remain competitive and productive, and will
also encourage a much-needed culture of prompt payment that is presently absent.
Prompt payment is about doing the right thing. Why should Canada be so
different that we do not need prompt payment legislation? The United States,
Ireland, Australia and New Zealand have enacted some form of prompt payment
legislation. Trade contractors in these countries are operating more efficiently
than in Canada.
In conclusion, we wish to thank the committee for allowing us time to express
our support for Bill S-224. Passing this bill into law, in our opinion, is
simply the right thing to do.
Senator Ringuette: Thank you for being here. I saw you in the gallery
with the previous panel, so you know my priority concern with regard to making
sure that there is prompt payment.
What I'd like to ask you is with regard to the scope of the bill. The scope
of the bill is with regard to the federal government and Crown corporations.
That leaves all the other federally regulated entities. We're hoping that the
provincial governments will enact similar legislation, but if I look at the
discussion going on in Ontario right now, it's not only for the Ontario
government contracts; it's for the entire industry. It's for the private sector
With regard to the scope and the fact that we need to get this right and we
want the federal government to play a leadership role, should the federal
entities that are included in this bill not also include all federally regulated
entities? You have Air Canada, Via Rail and a whole slate of federally regulated
entities that would not be covered by this bill and would also not be covered by
any provincial legislation down the road.
The Chair: Does anyone want to answer it?
Mr. Brunet: I think we have to start somewhere. Getting the federal
government to support this bill and get it into place will hopefully bring many
others to the table, and make the changes and adapt to them.
In the provinces, I do know that Alberta Infrastructure has an active prompt
payment legislation on their contracts. Their contracts specify a maximum of 30
calendar days after the initial receipt of the application for payment. They
also say that the general contractor must confirm that they have paid their
subcontractors within 10 days of receipt of their payment. They are also
committed to publicizing the date of payment so that the subcontractors and
suppliers will be aware of when the prime or the general contractor was paid.
The general contractor will no longer be able to hide and say, "I didn't get the
money.'' It will be publicized. The provinces are starting to introduce this.
Senator Ringuette: To wake up?
Mr. Brunet: Yes.
Mr. Suppa: I also support those comments. As a national trade
association, we are supportive of federal work. One of our key goals, not only
with this provision but also with standards that relate to our industry, is that
they be uniform and harmonized across the country. The only way we will be
competitive with other countries is by harmonizing and doing those kinds of
things. I think the scope covers off what we are trying to do. I support my
colleague's comment because this is a great start.
Listening to the deliberation this morning, there is a lot of passion to do
the right thing to get it done right. We appreciate that and applaud your work.
Mr. Smillie: I spoke to a couple of people in different industries
about this idea. Everyone's eyes light up because everyone wants to get paid, be
it in the private sector, the public sector, small business or large business.
My one concern about your positioning is that it's a huge bite to take. To
apply this economy-wide would be very difficult. Even for all federally
regulated industries, it would be a massive project to undertake.
I agree with my colleague that it might be good to start small. How could we
not support making sure everyone gets paid, but from a theoretical perspective
it is very difficult to institute that economy-wide. I like the direction of
your question but I think it would be a massive undertaking to go forward on
The Chair: We have laws now where people have to get paid. We can't
shoot people for not getting paid so we have a legal process, which complicates
matters because everyone has rights.
Senator Ringuette: The issue is the subcontractors are caught in this
grey zone. There are regulations that they have to pay their employees but there
is nothing for them to be paid.
There is a slate of infrastructure projects across the country and the
federal government, in many cases, will be involved at 33 per cent — and, when
Parliament is at 33 per cent, then the municipality or the local region is at 33
per cent, too. We are talking about a lot of construction work in a short period
of time and a lot of money. How can we make sure that, with the granting of
federal funds, prompt payment is part of the condition for the funds to flow to
the two other entities? How do we make sure that happens?
Mr. Smillie: Briefly, the best way would be that Public Works and
Treasury Board would be required to require this of any project that federal
funding is facilitating. If Treasury Board and Public Works say that any federal
dollar involved in an infrastructure project across this country is subject —
you are not supposed to use props in politics — to these set of rules, and one
of those rules is prompt payment on any site that federal dollars flow on, then
those are the rules. It would require will on behalf of Public Works and
Treasury Board to institute that sort of rule in any project that the federal
government is involved in.
My understanding is that this bill would only apply to projects which may be
100 per cent funded by the federal government, of which there will be very few.
I am very supportive of extending that even further to other financing partners.
Senator Ringuette: Perhaps it should indicate or say "complete'' or
"partial'' because we have seen legislation where there is a requirement,
regulation or legislation. Even if it was "partial federal participation in a
project,'' that could work. I want to have your opinion. We are looking at a lot
of dollars and a lot of construction work. Are we missing an opportunity to make
this happen here?
Mr. Smillie: I would certainly come back and testify on that subject
Senator McIntyre: Thank you for your presentations. My question is
more of a follow up from Senator Ringuette's question.
The legislation covers contracts and the subcontracts of those contracts with
the federal government. Other construction projects fall under the purview of
the respective province or territory. That said, I understand that other
provinces such as Quebec and Ontario have been addressing the issue of delayed
payment. Am I correct to say, then, that there is a real urgency here that this
bill be passed so that other territories and provinces follow suit to correct
this situation? Mr. Suppa, you raised that issue in your brief.
Mr. Suppa: We are very supportive of that. I think it starts here. We
will play a key role as a not-for-profit trade association because we believe in
getting that message out to our members and their customers. That's a key role
we need to play and also to work on behalf of the Government of Canada and our
allied partners through the coalition to start working with the provinces to
implement the same procedures that have been put in place in Ottawa. We are
fully supportive of that.
Senator Enverga: Thank you for your presentations. I understand that
normally subcontractors include the margin for the risk of late payment. Mr.
Suppa, you mentioned that this would reduce prices for taxpayers through more
competitive bids. Mr. Brunet also mentioned that construction costs are higher
because trade contractors may have incorporated the risk of late payment.
With all this, if this bill is passed, how many percentages of savings could
the government realize? Do you have an idea of how much savings the taxpayers
Mr. Brunet: No, I wouldn't. I would hazard to guess at it but I think
it is for the benefit of the taxpayers. I think what happens with the
subcontractors or the trade contractors is if they know a general contractor has
payment issues or has a reputation for payment issues, they may bid higher or
they may choose not to bid at all, and that would reduce the bidding pool.
Obviously, if the bidding pool is reduced, you may not be getting the best price
as the federal government or as any other entity.
Mr. Suppa: I think that was also echoed earlier this morning. It is
about the jobs as well. If those jobs are lost, there is no additional business
being generated. I gave you that number of roughly $25 million annually as to
what the impact is to my industry. The way we came up with that number was we
are a $6-billion industry. Conservatively, about 10 per cent of that is
government jobs. Then we worked it back in terms of carrying costs, and so on.
If that money is not in the channel, that is just my sector of the business. I
think there was a number of a quarter of a million or higher in terms of money
not being found within the channel.
It gets even more complicated when, as an industry, we start to see more
retrofits in government buildings to more efficient products. Why would we price
them higher because of the late payment when we have the capability to do that
now within a reasonable time frame?
I can't quantify the cost, but it is large in terms of potential impacts to
Senator Moncion: My question is about delays. You were saying that 90
days is closer to the time frame that is used now for contractors to make these
payments. Earlier, Senator Plett said that in 2007 these numbers were at 62.8
days; in 2012 they went up to 71.1 days; and in 2015, or since, they have gone
up to 80 days.
I take into account that contractors and subcontractors all want to be paid
and they all want to pay, and the government pays. What is causing these delays
and why are some of these people not getting paid?
There is a connection between the financial crisis and the access to funds to
pay. Since the financial crisis, what we have seen in the financial industry was
financial institutions withdrawing from providing funding for the construction
industry or managing risk more. Is there a connection between the access to
financing for contractors or subcontractors to be able to pay, just to look at
this whole thing? For me, most contractors want to pay their people and most
contractors want to be paid. Is there another underlying problem here?
Mr. Brunet: I would say no. The big problem is for the trade
contractors to get the money from the general contractors. Once the trade
contractor gets the money, they are also responsible to pay their
subcontractors, the people that they have hired if they don't have enough
workers to do specific jobs as well. The onus is on the trade contractors to get
the money from the general contractors.
Right now my understanding of the federal contract that exists is that the
government will pay the general contractors within 45 days. Under Bill S-224, we
are looking to get that reduced to 30 days and also have payment terms from the
general contractors to the trade contractors which will help alleviate some of
However, as Mr. Banfai said earlier, it may be 90 or 120 days, and the trade
contractors may still have to resort to litigation to get that money.
Senator Plett: Briefly, Ontario and Quebec have clearly indicated that
they want to follow suit. I appreciate Senator Ringuette's support of this
legislation and some of her comments that she made now as well as earlier.
Clearly, we will be working on one of the concerns that she raised, which I
think was legitimate. She has raised some more now about why don't we increase
the scope of this legislation.
The fact that Ontario and Quebec are planning on following suit would lead us
to believe that with the federal government, Ontario and Quebec, certainly as
far as government work, we are going to hit two thirds or three quarters of all
government work in Canada just with those two provinces and the federal
government. So it's a huge step.
Do you not agree that this is a great first step and that we should simply
move ahead as quickly as we can with this legislation and be the leader in this
and have the provinces follow suit and that eventually — hopefully sooner rather
than later — all construction industries will be doing this?
Senator Ringuette: What about the rest of Canada? What about the other
Senator Plett: If I can finish the question. If we would see that
three quarters of Canada is doing this, would you not agree that probably the
Province of Manitoba would follow suit because there are a lot of contractors
close to the Ontario-Manitoba border that would say that maybe I am better off
working in Ontario, and that Manitoba would want to follow suit?
Mr. Brunet: I definitely agree. With the major infrastructure spending
the federal government will be undertaking in the near future, the opportunity
for the federal government to become the leaders here is the key. You mentioned
Quebec and Ontario, I know that prompt payment legislation is being reviewed in
B.C., they are starting the movement; in Saskatchewan there is a group created
that is pushing for it as well; and as well in Nova Scotia. I think a lot of
them are waiting for the first one to appear and then a lot of them will follow
Mr. Suppa: I echo the comments of my fellow colleagues. I am a
nationalist. I love my country of Canada. I do understand the issues of federal
and provincial partnerships, but it's a huge step when you have two key
provinces that have supported the great work that has been established here. You
have to start somewhere. The other provinces will follow suit.
To give another example based on my background where we have dealt with other
issues, we have wonderful standards in our country and we have wonderful
plumbing codes, but the plumbing codes in each province are implemented at
different times. We are trying to work toward timely automatic adoption, which
means the code comes out every five years. We want each province to come out 12
months within the publication of the code.
Right now we have three years, two years, six months; we are all over the
map. We started with two key provinces, and we are starting to see some traction
across the country.
We have some examples where those partnerships work. Let us build on it. It
will happen. This is a great start to what you have now and you should be
applauded for that.
Senator Day: I understand that your life would be easier if this
legislation were passed, Mr. Brunet. I would like you to focus on what we are
trying to solve. As I understand it, the relationship between your members and
the contractors that they may be signing with, or another subcontractor, is all
defined by contract at the present time; am I correct on that?
Mr. Brunet: Yes.
Senator Day: Do you have a standard contract with all the clauses in
it that you think should be there that you recommend to your members, to each of
Mr. Brunet: There is a standard contract. I think they call them
CCDCs. They are put out by the Canadian Construction Association. A lot of
contracts adhere to that. You have to be careful because there are a lot of
documents annexed to that agreement, and without the use of a lawyer,
understanding the ins and outs of those contracts is very difficult.
Senator Day: So we are looking to this legislation to solve that
Mr. Brunet: I am hoping that this legislation, yes, will solve a lot
Mr. Suppa: The plumbing and heating industry is based on relationships
between distributors and mechanical contractors. When a wholesale distributor
has to cut off a mechanical contractor because they have been good customers and
they can't pay because they haven't been paid, it causes conflicts. We have to
balance that relationship with the prompt payment legislation. I think this act
will cover that.
When you have the balance of business relationships with an act that will
strengthen it, and as mentioned before, bring more structure, I think you have
Senator Day: But the business relationship is defined by a contract
now. You can put in there whatever you want, but are you saying that's too close
a relationship and you want some legislation that is more arm's length so you
can maintain your relationship?
Mr. Suppa: I am saying the bill is focused on prompt payment for
people to get paid. I believe this will accomplish that. I think you are going
deeper in terms of contractual arrangements. They have their own contracts. I
don't get involved with that part of the business. If everyone down the chain is
being paid on time, I think that is a healthy success.
Senator Day: Let me finish off, then. With the standard form contract,
you can provide for a specific period of time for payment. You can provide for
interest in there if there is late payment. You can make all those provisions in
that contract, but you are saying that that relationship with that contract is
not enough, you need legislation.
Mr. Brunet: I would have to say yes. Legislation is a key part of it.
The contract is one facet of the relationship, but you need the legislation. You
need the teeth to help the trade contractor if there is an issue.
Senator Day: Mr. Suppa, do you have anything further on that?
Mr. Suppa: I would support that comment as well.
The Chair: Thank you, Mr. Suppa, Mr. Brunet and Mr. Smillie, for your
testimony and for answering the questions so well. We appreciate it.