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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 13 - Evidence - February 9, 2017


OTTAWA, Thursday, February 9, 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 10:32 a.m. to give consideration to the bill.

Senator David Tkachuk (Chair) in the chair.

[English]

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 chair of the committee.

Today is our third 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 referred to our committee on November 28th.

I am pleased to welcome, in the first portion of our meeting, Steven MacKinnon, Member of Parliament for Gatineau, Quebec, and Parliamentary Secretary to the Minister of Public Services and Procurement as of January 2017.

Prior to his election to Parliament in 2015, Mr. MacKinnon was senior vice-president at a global consultancy where he was a practice director for mergers, acquisitions and financial communications. In fact, Bloomberg recognized his practice as Canada's leading mergers and acquisition advisory, which was also a recipient of the Canada China Business Council's gold award.

Mr. MacKinnon, thank you for appearing before us today, along with your officials from Public Services and Procurement Canada: Kevin Radford, Assistant Deputy Minister, Real Property Branch; and David Schwartz, Director General, Commercial and Alternative Acquisitions Management Sector, Procurement Branch.

I understand you have some opening remarks, Mr. MacKinnon, after which we will go to a question and answer session. Given you have some duties to attend to in the House of Commons, my understanding is that your officials will stay behind if you leave before the end of our question and answer session.

Please proceed with your opening remarks and then we'll go to questions.

[Translation]

Steven MacKinnon, M.P., Parliamentary Secretary to the Minister of Public Services and Procurement: Thank you, Mr. Chair. This is my first appearance before a Senate committee. My apologies if I am not following your protocols, which are not the same as in the other place. I have to leave at 11 a.m. to join the minister in her other duties.

Mr. Chair, distinguished committee members, thank you for the opportunity to be here this morning to discuss Bill S-224, an Act respecting payments made under construction contracts. We all agree that prompt payment is good for the construction sector and we all agree on the spirit and intent of this bill.

Yesterday, the committee heard from witnesses about the impacts related to payment delays. Small and medium- sized enterprises are critical to our economy's health. We know that these businesses are the most at risk when payments are not flowing through to all levels of the industry, as late or non-payment can have a significant burden on their financial capacity. Even a minor delay in payment of one or two invoices can put smaller businesses under financial stress. This means that jobs and livelihoods are at risk and families face unnecessary hardship.

There are things that can be done to meet the spirit and intent of this bill.

[English]

We must at the same time, however, acknowledge the progress being made by our provinces with whom jurisdiction for the issue rests, and with whom we are collaborating closely to ensure these best practices may flourish.

First I would like to explain the steps taken by Public Services and Procurement Canada to support prompt payments. Our government already has some measures embedded within its contracts that support prompt payment practices. For example, contractors and suppliers who do business with the federal government must be paid 30 days after the receipt of the invoice. Invoices not paid within this mandatory period are subject to interest.

[Translation]

Currently, federal departments pay 90 per cent of their invoices on time. The rate is even higher when we look at Public Services and Procurement Canada, which handles just over three-quarters of all construction services purchased by the federal government. The department pays 96 per cent of invoices within 30 days. Of the remaining 4 per cent, the vast majority, 80 per cent, are paid within 31 to 60 days. Public Services and Procurement Canada has a strong record of paying our contractors, but we also want to ensure that other players in the payment chain are treated fairly.

There are clear obligations in that regard too. For construction contracts managed by Public Services and Procurement Canada, prime contractors are required to submit statutory declarations with every invoice acknowledging that all their legal payment requirements have been met.

For construction contracts over $100,000, the department also requires contract securities, for instance, labour and material bonds that help protect sub-contractors against non-payments.

[English]

Those requirements all play a critical role in supporting timely payments on construction contracts and have set the standard for procurement in this area. We have a solid foundation in place which allows us to conduct business as efficiently and efficiently as possible while protecting the integrity of the contracting process.

PSPC also has a good reputation for working with industry and stakeholders to address contracting and procurement issues. In the spring of 2016 Minister Foote instructed PSPC and its officials to work closely with industry to explore possible ways to improve payment terms and practices at all levels of the supply chain.

Those initial discussions evolved into a joint government-industry working group led by Public Services and Procurement Canada, Defence Construction Canada and the Canadian Construction Association. To ensure we have all the input from all stakeholders involved in improving prompt payment practices, we also consulted with the National Trade Contractors Coalition of Canada, with whom I had the pleasure to meet the other day, as well as provinces and territories. Responsibility for this issue is shared between industry and government, and it is critical that we have a concerted and integrated approach to finding enforceable solutions.

The working group has been focused on identifying possible solutions that would improve the timeliness of payment throughout the chain and meet the needs of the industry. As solutions are identified to improve prompt payment practices, the minister has instructed that PSPC prioritize implementing them quickly within our departmental processes. Results will help decide whether any solutions can be used elsewhere, for instance, in construction contracts awarded by other government departments.

[Translation]

Improving transparency is one of the areas that the working group agrees needs to be addressed, especially with respect to information on construction contracts and payments. With that in mind, the department is considering publicly disclosing the dates of payments made to prime contractors, which would inform lower tiers as to when they can expect payments, or to exercise their respective contractual rights.

[English]

Although I applaud the efforts toward improving prompt payment practices there are some challenges. First, under the Canadian Constitution, construction contracts fall within provincial jurisdiction under property and civil rights. This may give rise to jurisdictional disputes and legal challenges surrounding the proposed legislation. In addition, Bill S-224 does not identify any penalties dealing with contractors and subcontractors in default of the bill's provisions. This could result in possible legal actions against the federal government for not enforcing a contractor's obligations.

In addition, there is no mechanism for the government to know all of the firms working on a project, nor to be aware of the terms and conditions of contracts down the subcontract chain. It is therefore not possible for the government to ensure prompt payment to firms with which it has no contract.

[Translation]

While we fully support the intent and spirit of the bill, we need to be mindful of forcing the Crown into a relationship with subcontractors and into new responsibilities where none was designed to exist. For this reason, our government cannot support Bill S-224.

There is a new energy and mindset around our collaboration with industry and provincial and territorial colleagues and I am confident that together we will bring forward improvements to the entire payment chain. They speak to our commitment to be more responsive and also underline the importance of prompt payment, especially to small and medium-sized enterprises.

As we move on various fronts to address this problem, the minister is continuing to communicate with her provincial and territorial counterparts. A recent report commissioned by the Ontario government, a report that I understand was discussed at this committee, proposes remedies for sub-contractors seeking payment from prime contractors and is a model for prompt payment legislation.

I also understand that the governments of Ontario and Quebec have announced their intention to implement some type of prompt payment legislation or regulation in 2017. Federal andAQprovincial activities must be carefully aligned to avoid duplication, misunderstanding, misinterpretation, or jurisdictional conflicts. Ongoing communications will help ensure that our respective initiatives are informed by the latest information and evidence.

We continue to work with our provincial and territorial colleagues on these initiatives with the intent to improve prompt payment for sub-contractors, trades and suppliers, and we will continue to work on other administrative and contractual measures with a view to finding efficiencies that would improve prompt payment.

Mr. Chair, honourable senators, thank you for your time and attention. I would be pleased to respond to your questions.

[English]

The Chair: Minister, if what you say is true, that 90 per cent of the contracts are paid for by the government within the 30 days, this bill really would apply mostly to general contractors.

Mr. MacKinnon: Correct.

The Chair: Why would it be a concern of the government to ask general contractors to pay within 30 days if you pay within 30 days? Why would it be a concern of yours that this bill affects basically general contractors?

Mr. MacKinnon: Essentially for the two reasons that I stated. The first is that we are concerned this proposed legislation could interfere with existing constitutional provisions and could lead to jurisdictional disputes around lien law, contract law, and the general regulation of the construction industry.

Second, we fear, as I said in my speech, that subcontractors or contractors down the chain of contracting, with whom we have no contractual relationship, could then enforce or seek to enforce against the Crown provisions about which we have no knowledge.

Senator Plett: I agree with the chair. I think the government is missing the point on what this legislation is even intended to do. I have a two-page document that is being translated for all senators to read before clause by clause from a constitutional expert, Mr. Gerald Chipeur from Miller Thomson LLP, who states unequivocally that this is100 per cent federal jurisdiction. This is clearly work that is done on Crown land and you cannot separate the two. That, colleagues, is being translated and you will have it prior to the next meeting.

You talked about this being provincial jurisdiction, Mr. MacKinnon. Yet your working group met with the national trade contractors on Monday and stated clearly the provinces indicated that if prompt payment legislation was first enacted federally, it would be a catalyst for the provinces to get moving on legislation in their jurisdiction.

How do you square that box when your working group is saying that the federal government has to do this first and then the provinces will follow?

Mr. MacKinnon: Most generally we think the federal government has a responsibility to be a leader in this area and to demonstrate with its contracting and other practices that it can foster change and improvement in the industry. I'm not aware of the legal opinion to which you refer, but we are concerned about the overlap, the duplication and possible jurisdictional disputes that this legislation could propose. We think by working collaboratively with the provinces and ensuring that their regimes are brought up to date we can get to a regime that we all support.

As I also indicated, we support the spirit and the intent of this legislation but perhaps disagree on the means to get there.

Senator Plett: They aren't saying that you would be the leader. They are saying that the federal government needs to enact legislation. They are not upset about you stepping on their toes. They think you need to enact legislation.

You say, and possibly rightfully so, that the federal government has a reasonable track record of paying its bills on time. Public Works pays 96 per cent of I don't know how many billions of dollars of work every year. I wouldn't be bragging about paying 96 per cent of my bills promptly when that is still putting a hundred good companies in Canada out of business because somebody down the food chain is not paying them.

We're not asking for you to ensure that they do that. We're asking for a remedy for the contractors to suspend work and to go through the adjudication process to get the money that they are rightfully owed. We're not asking you to double-pay.

Every party, including the Liberal Party, supported this prior to your being in government. We have a Liberal MP who wants to carry this bill in the other place. All parties including your party, sir, supported this prior to the election. This has been three years in the making.

The bill has been in the chamber since April and today, two days before we want to go to clause by clause, all of a sudden you find out you're not supportive when the minister in the Senate said she was supportive of it.

Mr. MacKinnon: I can't speak to all of the past. What I can say is that we fundamentally agree on spirit and intent. What we don't agree on are the specific provisions of this proposed legislation. We have concerns from a legal perspective around claims against the Crown and on potential interference with provincial jurisdiction.

Senator Plett: But there is nothing in the bill that says anybody will file a claim against the Crown.

Senator Ringuette: I will start with a comment. Although you state that the government and the department have good intentions, if the good intention to work on this issue was really there the National Trade Contractors Coalition would be part and parcel of the working group that you've put together. Maybe suggestion number one would be to move forward to include trade contractors in the discussion.

With regard to the other comment about supply and services contracts and so forth, I see nothing in this bill that imposes any kind of rules or regulations or legal action for supply and services. What we see in this bill are provisions that would allow a subcontractor to be paid by the full contractor.

There is no legal imposition on the federal government. It is only providing for subcontractors to take issue with payment by general contractors. I have difficulties with that because there's no increased workload with regard to federal government contracting. Could you elaborate more because I really have a hard time understanding that position?

Mr. MacKinnon: On your first point, my understanding is that the NTCCC was previously part of the Canadian Construction Association and now are no longer. There is a full willingness to include them in working groups and working sessions that may occur. In fact, as I mentioned, interaction has already occurred with them. I think there's a full willingness to continue to work with them on this issue.

On your second point, before I turn to Mr. Radford, what I would simply say is that the codification of behaviours in the construction business is generally recognized, contrary to the U.K., New Zealand and other jurisdictions that have been cited, as something that falls squarely within provincial jurisdiction in Canada.

To regulate contracts and terms between parties with which the Crown may or may not have a relationship is something we view as overly problematic. Perhaps I will ask Mr. Radford to elaborate on that.

Kevin Radford, Assistant Deputy Minister, Real Property Branch, Public Services and Procurement Canada: With respect to the first point on NTCCC and CCA, co-chair a meeting regularly with the CCA.

The Chair: Could you expand on the acronym, please, for the people watching?

Mr. Radford: I apologize. It is the Canadian Construction Association. We have offered to do this jointly and my understanding is that both parties did not want to do it together. We have been working with the CCA, the Canadian Construction Association, formally through a working group. We have met four times. Then we met separately with the NTCCC but that was at their request. We are happy to put the offer out again, just for a point of clarification.

With respect to the legal components of the bill and with respect to the increased workload or issues for PSPC, Public Works, from our perspective maybe I'll use a practical example. Where we have a prime contractor working on a particular facility, perhaps in Vancouver, who is providing property, facilities and maintenance services, our contract is with the prime contractor. The prime contractor would then perhaps have a subcontract for cleaning services. He or she has a relationship with that sub and then that sub may have a national contract for cleaning but a subcontractor in Vancouver.

We don't have any visibility of the contractual relationship except with the prime.

Senator Ringuette: That is exactly what I am saying. In this bill there is no obligation with regard to the Government of Canada or with regard to Public Works. The obligations and the provisions are to deal with the level of contract and relationship between the main contractor and the subcontractors and maybe the sub-subcontractors in some instances.

I have a hard time understanding why you would be remiss. I really don't understand. It doesn't really involve the federal government except that it is within the job application role of Public Works. It doesn't request from Public Works any additional work whatsoever. It's an issue between the contractor and the subcontractor.

What is really behind, I sense, your opposition?

Mr. Radford: I'm going to defer to our contracting authority.

David Schwartz, Director General, Commercial and Alternative Acquisitions Management Sector, Procurement Branch, Public Services and Procurement Canada: The challenges we see are with respect to the Government of Canada, and I will use the example of the PSPC, entering into a contract with someone to operate our facilities. We've described the supply chain to the nth degree. We're not implicated in that commercial transaction between those two private entities right now.

Senator Ringuette: Yes, exactly.

Mr. Schwartz: We understand the proposed bill would have us play a role within that. If there were a dispute between two private sector entities, a small electrical contractor who is not being paid in a timely way would seek recourse from the Government of Canada. It would be somewhat challenging for us because we're not party to that commercial transaction.

Senator Ringuette: Where do you see in this legislation that a private contractor would seek any kind of compensation from the Government of Canada? Where do you see that in this bill?

Mr. Schwartz: Not specifically but it is sous-entendu.

Senator Wallin: Can you tell us why you think you are now constitutionally or legally vulnerable? It's not written in the bill. It's not there. It doesn't say the federal government is responsible. Why do you think that?

You've cited a few things. There are no penalties that could lead to action against the federal government. There is no mechanism to know the details of subs so we can't be held accountable. There are no remedies that you're accountable for. What's the argument constitutionally in your head?

Mr. Schwartz: Senator, I'm not a lawyer, but my understanding of the proposed legislation is that it is imposing payment terms. That's the objective. The Government of Canada leads by example. We have a very clear 30 days and we pay within those 30 days 96 per cent of the time. Of the other 4 per cent, 80 per cent of that is paid.

Senator Wallin: I don't think anyone is disputing that.

Mr. Schwartz: We are not party to that transaction. As we understand this legislation, it is imposing similar payment terms that the Government of Canada is—

Senator Ringuette: No, it's not.

Senator Massicotte: I would just like a comment. I know you cite a high percentage relative to prompt payment, but I hear comments to the contrary about your percentage. I also hear about a lot of delayed payments relative to holdbacks. In fact I had a personal experience before this life where it took a couple of years to get the holdbacks from the federal government. There doesn't seem to be a rush but maybe you've improved in the intervening period by getting money out there.

We all disagree or have a different perspective on the proposed legislation. However, the most significant improvement is the prompt adjudication of differences. Everybody makes the argument that there could be real differences and there probably are — that's life; that's business — but you need somebody to resolve them quickly so people can get paid.

You make the argument of the Constitution, but is there anything in the Constitution that would inhibit the creation of a prompt adjudication process? If you look at the experience in the U.K. and at the American system, they give importance to adjudication and it seems to solve the issue to a large degree. Is the constitutional argument applicable to that also?

Mr. Radford: We are not constitutional lawyers, first and foremost. First, regarding the references to the U.K. and the U.S., our understanding of what they have put in place at a federal level is around payment terms in the order of 30 days. At the federal government level here we are doing exactly the same.

Second, they've asked for statutory declarations that basically say when the federal government pays the contractor they actually have made their payments out as well within the terms of their contract. We do that as well.

The third component was largely the security bonds which are in place from an insurance perspective so that if something happens up the chain where their payments are at risk they can go to the insurance. We have that in place as well.

Senator Massicotte: How about my question on adjudication? We all agree this is very good. The contract is clear and the payment terms are clear. There is no dispute. The standard contract is very clear. It's usually 30 days but sometimes there are differences.

People can find excuses to hold back payment because they didn't like the colour or that is not what the plans or specs said. Do you disagree with adjudication? Is there a constitutional argument, which is the crux of your argument, toward doing prompt adjudication as we see in many other countries and in the United States?

Mr. Schwartz: We want to ensure that down the chain the people who are not getting paid have a mechanism to get paid.

Senator Massicotte: In other words you are not too sure about the answer to my question, but you are not against the principle.

Mr. Radford: No, not against the principle.

Senator Massicotte: Does the federal government ever pay interest on late payment? Obviously, 10 per cent of the time you are late. Do you pay interest?

Mr. Schwartz: We always pay interest.

Senator Massicotte: What percentage?

Mr. Schwartz: There is a standard posting rate.

Senator Massicotte: In a standard contract.

Mr. Schwartz: The same thing exists when we have holdbacks for an amount in dispute, if there's a dispute between ourselves and a general contractor with what we refer to as the prime. For example, if it is for $1,000 and there is $200 in dispute, we will pay the $800 within 30 days, resolve that $200, and pay interests on that $200 because we have delayed.

The Chair: It will be the same interest you charge me when I don't pay Revenue Canada, right?

Senator Black: I want to indicate to the clerk through the chair that it is important we hear from Justice. Undoubtedly there is a good reason the justice lawyer is not here, but it is very important that we hear from federal justice.

The Chair: They gave no reason for canceling.

Senator Black: It could be the weather.

Senator Ringuette: Remember, we have the power of subpoena.

Senator Black: I will leave that with you. Unfortunately, the gentleman to whom I was going to put my summary is gone. Mr. Radford, may I put to you what I think I have heard and you can either defer or respond as you feel comfortable?

If I understand the testimony, there is a clear acknowledgement of an issue here. We all acknowledge there is an issue. Your approach to addressing the problem is through a series or perhaps only one working group. Is that correct?

Mr. Radford: More than one, yes. We are also engaging in a committee. We have a committee where the federal, provincial and territorial get together. We are addressing it through levels of government and learning from one another around best practices.

Senator Black: This would be a live issue in your department.

Mr. Radford: Yes.

Senator Black: I heard the minister clearly say that he does not believe that this legislation will be of assistance in solving the problem as defined and therefore will not support it. That is what I heard him say.

When will the working groups that you talked about report? What is your intention there? Will the Government of Canada respond to any recommendations they make?

Mr. Radford: There are 14 action items that have come out of the working groups with the CCA. We have also developed and approved an engagement strategy with the stakeholder groups at all levels together.

Let me use a couple of examples of prompt payment disclosure. We are trying to put an issue on the table with the Canadian Construction Association, and they are supportive as well. We want to make available on our website enough information so that subs down the chain can see that the prime has been paid.

We are prepared to do that. We have adjusted our system such that we would be willing to do that early in the new fiscal year, say in Q1 of fiscal year 2017-18. We are trying to ensure the information we put on our website is something that everyone has agreed to. The working group is really about collaboration.

Another main piece we looked at was: What are the principles? Everyone agrees with prompt payment. To your earlier point, senator, transparency in prompt payment is important. Even coming to a consensus on the word, transparency is important as are shared responsibility and urgency to get it done. These are fundamentals in the whole premise of the plan of action.

We have also looked at fair terms all the way down the chain. I should mention that Defence Construction Canada is also part of that working group. I didn't say that earlier.

For all of the contracts we put in place we develop terms and conditions that echo the principles we discussed around prompt payment. Industry is then looking at the templates we present and asking how they actually leverage those templates down the chain so that they can actually enact them. That is another area from prime to sub, something we don't have visibility on now.

Another is the payment certification process. Right now Treasury Board sets the policy for us. Policy is under renewal now as well. However, as we work with Treasury Board perhaps we can look at the 30-day policy and perhaps move that to the left, provided that we can still do our due diligence. We have to ensure that the paint is the right colour, which I think was one of the comments earlier, before we sign. That is another area we are working toward.

I could go on; there are 14 of them. Another one that might be of interest is dispute resolution because part of the earlier conversation was around what it is PSPC or the government is concerned around dispute resolution?

We have a good dispute resolution process. We are sharing that with the working group members as well. The industry is examining some of its current contract documents on behalf of the members of the Canadian Construction Association and is looking at the templates on the particular arrangements around the prime and sub relationship. Part of the shared responsibility would be that we start using the same type of contract so that we don't get the 90-day or the 120-day payment, et cetera.

The final one is education. How do we ensure that small and medium enterprises are aware of their rights and obligations? How do they put disputes forward? The working group is looking at training programs to help with consistent messaging all small and medium enterprises understand what their rights and to equip them better for when they either enter the business or run into a problem within the sector.

Those are some examples we have been working on.

Senator Black: Could you leave that document with the clerk?

Mr. Radford: Yes.

Senator Moncion: I understand the way it works in Canada. Because we have provinces there is legislation in every province on construction. Then there is legislation in the federal government.

Our concern is more about the position of the federal government. I understand that provincially you cannot regulate, but you can work with the provinces to fix the problem. I am not necessarily sure that the problem is at the federal level. I might be mistaken. If you look at the U.K., New Zealand and Australia, the prompt payment legislation has proven to be efficient. It seems to be an umbrella legislation that helps to regulate the construction industry.

I have been a lender for a long time and I have lent to construction companies. I understand the way things work, the progress reports that have to be presented, and some of the discrepancies found because work hasn't been done according to the contract. These kinds of disputes come with the lenders, the payments and all that. However, I don't understand the position of the government when it says that it is not necessarily needed.

I think it is just leading by example. What we are providing here is not necessarily legislation that is all that stringent for the government. I understand the things you want to put in there. I understand you can't go further as the federal government. You can't regulate contracts that are not yours to regulate because the work has been done, but what is the obstacle? What is wrong with what we are proposing that makes the government uncomfortable? What makes you come to us and say that you will not be putting this forward?

Mr. Radford: Again, I am not a constitutional lawyer, but the advice we received from Justice in the particular area was twofold.

We looked back for precedent around the issues. The issue around the legislation was an issue of jurisdiction under the Constitution and the constitutionality of the legislation. On the constitutionality around property and civil rights, that component being in the provincial jurisdiction, the advice we received was that we may have unintended consequences in and around how it would be enacted, how it would be enforceable, et cetera.

Perhaps the best way is to give you an example. I think there is kind of an underlying question and I am trying to answer it. I used an example of Vancouver where cleaners aren't getting paid. They are a sub to a sub. They need to get paid. They want to be paid. Maybe they stopped work, et cetera.

Everyone understand that we have no visibility so where would they go for remedy? I will use a specific example Brookfield Global Solutions has a large $23 billion contract with us. It contracts many of the maintenance repairs of that business to the subs and the sub-subs. They have been with us now for 18 months. We have governance with them where we meet every couple of week. Now it's every month. We seem to be rolling. We were hearing rumours that they were not paying promptly. They don't want to have a reputation of not paying promptly, so they took it to action. We were seeing an average of 60 days. They provided us with all the information.

This is where the federal fall government can have an influence and where we have an influence. Over a period of time we got that up to 45 days. Now they are meeting 82 per cent of all of the payments that they make below them in 45 days, which is a lot better than 60. We can see improvement.

We are also tracking some of the behaviours of the subs. Brookfield is doing this and is sharing it in an open way with us. About 11 per cent of those come in very late. Of the delta between the 82 and 100, 11 per cent are coming in very late. We are trying to educate, if you will, the behaviours around how those invoices are hitting the street and how they are being paid from where we sit. I think the main issue is the enforceability.

I will now go back to the example of Vancouver. If in this case the prime is being asked to pay but are not happy with the cleaning services actually being delivered, then how do we manage that given we have no visibility in those relationships?

The Chair: Mr. Radford, we don't have the justice official here because they canceled out. I am sure that they would have given you written advice, not just chit-chatted with you on the phone. Could you table that with us? Could you agree to send us the advice the justice officials gave you, from which you are quoting here, to see what it says exactly?

Mr. Radford: Yes.

The Chair: Since both of you aren't lawyers and can't interpret it I think that would be helpful.

Mr. Radford: Yes. I have said it a number of times that it was really around the theme of constitutionality.

The Chair: Do you have a written response from Justice on this matter?

Mr. Radford: Yes.

The Chair: Then you can table it with us.

Mr. Radford: It is advice to the minister so there is privilege there. I don't know whether I have the authority to waive that privilege and table it.

The Chair: I am sure the minister could waive it. It's important. Either that or you could bring the official here. Maybe you could let the change loose at Justice.

Mr. Radford: I'm certain I don't have the authority.

The Chair: I know you don't.

Senator Wetston: I personally have had a lot of experience with constitutional law, usually on the losing side, unfortunately. However, I was in support of the federal government's initiative.

I put to you the following: It is often the case when you deal with federal-provincial issues in our federation that the Constitution seems to come up as the big barrier. I agree with the chair that it would be useful to have a better understanding of the rationale since we are dealing with legislation.

What we heard from the witnesses is that some of the general contractors are just sitting on the money. I didn't ask this question yesterday but as government officials I may ask you today. One individual said somewhat facetiously that they were sitting on a lot of money, earning a lot of interest or dividends on it, and holding back. If you knew that, you might want to do something about that, if you could. I would ask you to look into it. Also they were suggesting they were getting a lot of points on GICs, and I was going to ask: Can you tell me what GIC that was?

More respectfully, Mr. Radford, would you ask your justice lawyers whether or not you could rely on your residual powers constitutionally to enact narrow and specific legislation focused on the failure that has been brought to the attention of this committee? Would you ask them whether or not that could be focused on an effective, timely, efficient and not costly dispute resolution process that might get to the failure that has been presented to this committee? Will you ask your justice lawyers to give some thought to that? You might have a comment, of course.

Mr. Radford: We will ask our justice lawyer, as mentioned. We are trying to make a difference. I don't want to leave it with this committee that PSPC is not trying to make a difference. Within the industry sectors we are working with through our working group they are surprised at the progress we have made in some of the areas we mentioned, because they had been talking about it for 10 years.

The minister gave us direction to collaborate and to help with the issue. We have been aggressively pursuing it with industry in the areas we mentioned, including dispute resolution, disclosing prompt payments and playing a leadership position in those spaces. We are 100 per cent behind the intent of the bill.

Senator Day: We have been talking about justice lawyers. Presumably they are seconded to your department. They are lawyers that are still paid by Justice but are working full time on issues in your department. Is that correct?

Mr. Radford: That is correct. On constitutional matters we rely heavily on their advice.

Senator Day: Do you know why the justice lawyer or the seconded lawyer was not able to attend today?

Mr. Radford: No.

Senator Plett: I need to make a couple of comments. I want to correct something. I am not sure whether Mr. Radford or Mr. MacKinnon said it, but one of them said that MPCC is no longer part of CCA.

For the record, they have never been part of the Canadian Construction Association. I don't know where they get off saying they are no longer part of it. They have never been a member of the Canadian Construction Association. Different members of the National Trade Contractors Coalition are members of the Canadian Construction Association, not the organization.

You say, sir, that you are 100 per cent behind the intent, just not 100 per cent behind the solution. I guess that is where my problem is. I want to read into the record the closing comment of Gerald Chipeur. As I said earlier, chair, the entire document will be distributed. Parliament has the jurisdiction to enact Bill S-224.

The Chair: You will be distributing that anyway.

Senator Plett: Yes.

The Chair: If you have a question, Senator Plett, then you can distribute the piece.

Senator Plett: Fair enough. I will distribute it but I really wanted to read it on the record.

The Chair: It will be in the record if it is distributed.

Senator Plett: This legislation, sir, was not presented on a whim. This is not the first proposed solution. This has been decades in the making. Every working group, every study — the Reynolds report and the Charbonneau commission — and virtually every country in the Western world have arrived at the same conclusion: Legislation is the only solution to this problem.

As one witness said yesterday, if it is not enforceable, it is not a solution. Striking up yet another working group is not the answer. Contractors around the country will continue to go out of business while your working group is going about coming to the same realization.

Aside from jurisdictional or constitutional issues, is there any other reason why the government would not support that? That is the only reason I am given. If we can deal with that issue, would you be supportive of this legislation?

Mr. Schwartz: I will clarify my comment from earlier. My understanding of the intent of this legislation is that it creates an obligation on the government and contractors to pay within a specified time.

Senator Plett: But it doesn't.

Mr. Schwartz: I apologize if I have misunderstood. The challenge of the legislation is that it's unclear with respect to the role the government would play in terms of policing — and I am using that term liberally; I apologize — or enforcing when there is a disagreement between two private sector entities.

The Chair: I am now pleased to welcome in the second panel, from the Aecon Group Inc., Yonni Fushman, Senior Vice President and Deputy General Counsel; and as an individual, Ted Betts, Partner, Head of Infrastructure and Construction, Gowling WLG (Canada) LLP.

Yonni Fushman, Senior Vice President and Deputy General, Aecon Group Inc.: Good morning, members of the committee. I am the Senior Vice President, Deputy General Counsel with Aecon Group Inc.

The Chair: My understanding is that Aecon Group Inc. is a general contractor?

Mr. Fushman: Yes.

The Chair: I want to congratulate you for coming here today.

Mr. Fushman: We are also known as the forces of darkness, I understand.

Senator Massicotte: You are either very smart or naive.

Mr. Fushman: This sounds like fun.

The Chair: I'm sorry. Please proceed, Mr. Fushman.

Mr. Fushman: It's my pleasure to speak to you today on behalf of Aecon. We sincerely thank you for the invitation to appear before you on this very important issue.

Aecon is one of Canada's largest contractors. We're proudly Canadian and we trace our roots back 140 years. Aecon performs work across Canada, federally and provincially in nearly every sector of the industry.

The committee heard last week and yesterday about the issues of slow payment in the construction industry. The committee has heard a number of times that the issue of slow payments to subcontractors is at its core a problem of general contractors improperly exercising their leverage and wrongfully refusing to make timely payments to subcontractors.

As a representative of the general contractor community I'd like to offer another perspective. General contractors have just as much of a stake in prompt payment as our trade contractor partners because general contractors are the meat in the sandwich between the owner who receives the benefit of the work and the trade contractors who perform it.

I believe I speak for the majority of general contractors when I say that general contractors absolutely favour prompt payment, but, in the words of Senator Ringuette last week, we have to get it right. The general contractor community opposed Ontario's Bill 69 because that bill didn't get it right and we have consistently supported the Bruce Reynolds report because its balanced proposals did.

My goal in speaking with you here today is to identify some areas of the bill that might not yet get it right and to offer some possible solutions.

It's important to frame the issue by acknowledging how broad and varied the Canadian construction industry is. Projects range from thousands to billions of dollars, and they are delivered in vastly different contract forms, from construction only to design, construction, finance, maintenance and operation of a project, all in one contract. It is important to recognize when painting with a broad brush of legislation just how fine the contours of the canvas really are.

We believe there are some aspects of Bill S-224 that inadvertently may paint with too broad of a brush. Because of time constraints I will focus on only three of those issues this morning.

My first point addresses a cornerstone of the bill, 30-day fixed payment terms. That concept was one of the elements of Ontario's Bill 69 that engendered the most resistance from the general contractor community because it is a one size fits all solution that will not fit in all situations. We would suggest that the committee consider following Bruce Reynolds' recommendation that the most balanced approach would be to allow the parties to agree to the timing of invoices and require by law that once an invoice is properly rendered in accordance with the contract payment would be due 30 days from then.

The distinction is important. Once two parties have agreed to invoicing terms it makes good sense for the law to enforce those terms and require payment within 30 days of a proper invoice. Given the diversity of contracts within the industry, it seems inevitable that unintended and undesirable consequences will result from requiring that all contracts follow a rigid 30-day invoicing cycle. I am optimistic that this suggestion would not face opposition with the trade contractor stakeholders who appear willing to accept it in Ontario.

One of the other friction points with Bill 69 was that it didn't make any provision at all for milestone payments. I'm pleased to see that the drafters of this bill have made some accommodation for milestones by allowing for milestone terms in the prime contract to flow down to subcontractors. From the perspective of what I call conventional projects that may well be enough, but the federal government is also engaged in some very large infrastructure projects.

On large infrastructure projects this apparently simple limitation on milestone payments would actually significantly increase the risk profile and thus the cost of those jobs. Regardless of the payment structure in the prime contract, it is a very common practice on large infrastructure projects to negotiate highly tailored milestone payments between the general contractor and its various types of subtrades.

The reason is not to improve the general contractors' cash management but risk management. By tying payment to completion of a certain block of services rather than simply the amount of work done in a month, the general contractor is able to align the subcontractors' incentives with the commitments that the general contractor has made to the owner. This point may seem technical but it matters from a public interest perspective because the less flexibility a general contractor has to properly manage risk, the more likely that the cost of risk will be priced into bids and passed on to taxpayers.

One potential solution would be that projects of a certain profile be exempted from all or portions of the bill. Another more direct solution would again be to follow the Reynolds report and allow the parties to agree to invoicing terms, including milestone payment terms, and focus the legislation on enforcing those terms.

The third and final point I would like to make is there are many details of this bill that have not yet been finally and properly tuned. For example, as currently drafted, a general contractor would be deemed to accept a subcontractors' invoice five days before the owner is required to notify the contractor that the owner has a dispute with the subcontractor's invoice.

The general contractor would then be required by law to self-finance a payment to the subcontractor, for which the owner has rightfully withheld payment and may be within its rights to never pay. This would be statutory codification of the meat in the sandwich problem that general contractors are already faced with. I am confident that this result was not the intention of the drafters but nonetheless it is the result the bill would achieve.

The particular problem could be easily resolved by a simple drafting fix that I have suggested to Mr. Banfai. I have identified several other examples of technical and material issues, and I would be pleased to work with Mr. Banfai and this committee on addressing them.

I would not presume to suggest, though, that I have identified all the glitches and inequities, and I would urge the committee to engage with as many stakeholders groups as possible to canvass the full array of insights and perspectives. It may also be beneficial to pause this process until Ontario releases its draft legislation this spring and then work collaboratively with Ontario to harmonize both pieces of legislation. That would be an important first step in relating an integrated and consistent approach to prompt payment Canada-wide.

To summarize, we ask the committee to recognize, first, that prompt payment is a complex issue and not matter of general contractors exercising leverage at the expense of subcontractors; second, any legislation should serve the public interest in reducing the cost of construction projects; and, third, Bruce Reynolds' recommendations, which were formed after exhaustive consultation with 30 stakeholders groups from all walks of life of the construction industry, should be used as the template for any prompt payment legislation.

On behalf of Aecon group we greatly appreciate the opportunity to participate in this process and I would be happy to take any questions you have.

Ted Betts, Partner, Head of Infrastructure and Construction, Gowling WLG (Canada) LLP, as an individual: Good morning and thank you for inviting me to attend this important meeting on the Canada Prompt Payment Act.

My name is Ted Betts. I am a partner at the law firm Gowling WLG Canada. I am the Canadian head of our infrastructure and construction sector group, one of the largest construction law practices in the country and, ever since our international combination last year, one of the largest globally as well.

I am also the secretary of the Ontario Bar Association Construction and Infrastructure Section Executive at which I am the co-chair of the OBA Construction Lien Act Reform Committee and was chair and author of the OBA's submission to the Ontario provincial government on its Bill 69, the Prompt Payment Act of Ontario. However, I should state that I am here in my personal individual capacity and I am not representing the OBA today.

In our construction group at Gowling we act for all levels of the pyramid. We've acted for owners, governments, P3 project companies, contractors, suppliers, trades, sureties, insurance companies and lenders — anyone. For the record, I did call them all up and they confirm that they all pay promptly. We have a real A list of clients.

I would like to focus on two overarching aspects of the bill, both of which you've talked about a fair bit in the last week, and both of which relate to key recommendations of the expert review on the Ontario Construction Lien Act. In doing so, I hope I can assist this body in getting at the real problems underlying delayed payments.

We have referenced several times the Ontario Expert Review Panel on reforming the Ontario Construction Lien Act, written by my esteemed colleagues Bruce Reynolds and Sharon Vogel. They really did an excellent job. If you haven't read it thoroughly I would go over it and read it several times.

In preparing their report, Mr. Reynolds and Ms. Vogel's stated objective was to strike a balance between the many competing interests in the construction industry. When it comes to promptness of payment, this means balancing the interests of trade contractors and the very important principle of freedom of contract, or as Mr. Reynolds and Ms. Vogel wrote in their report, the "sanctity of contracts.''

A reason for this sanctity is that the market can adapt to new and changing circumstances, different project structures, new methodologies and new approaches much more rapidly than legislation. Had Bill 69 in Ontario been adopted two decades ago, it would have precluded P3 and other alternative financing procurement models from ever evolving. That would not have been in the public interest at all, and we have to ask ourselves what's the next project delivery model that we could think of.

The Canada Prompt Payment Act applied many of the lessons of Bill 69. It did a really good job at listening to the market response to Bill 69, but the expert review report went even further and deeper in addressing the real problem of delayed payments. The report takes a more nuanced approach and follows more closely U.S. federal legislation and U.S. state legislation on prompt payment.

Such legislation includes a few significant differences from the Canada Prompt Payment Act. I'll just highlight a couple of those briefly.

First, as Yonni just mentioned, timing of payment is triggered from the submission of a proper invoice. The legislation tends to permit the contracting parties to define the requirements for proper invoice within certain parameters, including when invoices may be submitted. If the invoice is not proper, the invoice is returned and the clock is restarted.

Second, timing of payment by the general contractor to the subcontractor is tied to payment by the owner to the general contractor, not from the date of submission of the subcontractor's invoice, as is the case in Bill S-224. Timing one payer's obligation to pay upon receipt of payment is not only fair and balanced but in the public interest on federal projects because it puts the pressure where it should be on the federal government to pay promptly. Otherwise, you're just shifting the cash crunch problem to a different party, not attempting to resolve it, and increasing the likelihood of disputes.

The Reynolds report also notes and is consistent with federal legislation in the U.S. and elsewhere that most prompt payment legislation preserves a payer's right to set off and holdback from payments, provided notice is given. This is another important reasonable and long-standing right that parties have in contract and at common law and that the Ontario expert review recommended to be preserved.

As we know from the independent studies circulated by trade contractor's associations, the time to get paid is getting longer on projects, but those studies don't tell us why.

For example, it's not clear that a distinction is being made in the delays between payments that are delayed because the payer is simply holding on to the cash and delaying or contractually giving itself the right to pay on longer terms, and payments that are delayed as a result of disputes over work that has been performed or the amounts claimed. This is an important distinction.

It is also not at all clear that prompt payment legislation has resulted in cost savings or produced results that have been hoped for. As noted in Mr. Reynolds' and Ms. Vogel's report, there is limited information about the actual benefits of prompt payment. Project costs may even have increased due to increased administrative burdens, increased disputes and so on. That is obviously not in the public interest.

I often hear people claim that it is only in the construction industry where payees are not adequately protected from non-payment. In fact it is the opposite. Construction contractors have more protection than in any other industry. They have lien rights, trust rights, summary procedures in court, priority of their claims and so on.

I say this not to try to claim that payment protection is not necessary as it very much is, but instead to point out that even with all of this protection and all of this security, cash flow remains a problem and increasingly so. Perhaps legislating good behaviour is not the panacea we would hope it to be.

We know there are payment delays, but in my experience as a practitioner in the construction industry for over 20 years now the problem is not simply owners or contractors holding on to funds as long as possible and making a profit from holding the funds. The real culprit of delayed payments is disputed payments and how long it takes to resolve disputes.

A colleague of mine once compared prompt payment legislation to bringing a jackhammer to tap in a nail. It's overkill. I don't agree with that. I think it's the wrong metaphor. To me, it's more like trying to use a hammer on a screw. Sure, you can bang it in, but it isn't the right tool. To me the right tool is faster resolution of disputes through adjudication.

While Bill S-224 proposes the concept of adjudication, it seems almost an add-on instead of the centrepiece to ensure payments are made in a timely manner and cash flow is healthy on projects.

Instead, by allowing suspension and claims for damages, Bill S-224 provides two nuclear options that are at odds with getting paid promptly and are not in the public interest. The unintended consequence of trying to be protective and helpful is to create a different but more intractable problem of escalating disputes. This is what we are starting to see in jurisdictions that have adopted rigid codification of prompt payment obligations without adjudication.

By contrast, in the United Kingdom the issue and tension of prompt payment seem to have dissipated. My Gowling partners in England, who have 20 years of experience with adjudication now, tell me this is because of adjudication which provides a sort of short, rough, quick justice to resolve disputes and get cash flowing on a project.

In this the Ontario expert review report by Mr. Reynolds and Ms. Vogel also got it right and recognized that by alleviating the cash flow problem arising from disputes you have really solved the crux of the problem. Not only that, but the U.K. experience demonstrates that the behaviour of project parties has adapted and modified. There are decidedly fewer disputes that go to court or arbitration, and so dispute costs are overall down and cash flow accelerated. That to me seems to be using a screwdriver to install a screw.

In final closing, in making its recommendations the expert review report consulted very widely in the industry; researched multiple jurisdictions, United States federal and U.K. legislation in particular; and accepted dozens and dozens and dozens of written submissions in an effort to strike the right balance.

Some of us disagree with some of the specific recommendations of the report, but I assure this committee that there is a broad consensus in the Ontario construction industry that they found the right balance, so much so that the Province of Ontario is looking at the report as a road map to reforming construction lien and payment laws in Ontario. It's a guidebook. We are told to expect draft legislation this spring, which will include a prompt payment regime for Ontario.

It behooves the committee to carefully consider not only the report from Mr. Reynolds and Ms. Vogel and its approach to prompt payment and dispute resolution but to the legislation that is to be introduced in Ontario, given the extent of the research and consultation involved and the success in finding the balance between competing interests.

The Chair: Mr. Fushman, once a general contractor gets paid for a job by the federal government or whatever, why would you not pay the subcontractors within 30 days?

Mr. Fushman: I would say that's a bit of a leading question presupposing that we're not paying in 30 days.

The Chair: I am presupposing. I'm just going from the evidence we've heard that a lot of general contractors don't pay in 30 days. If you get paid, what would be a reason for your not paying a subcontractor in 30 days?

Mr. Fushman: If you take the cleanest example, there is one owner, one general, one sub. If the owner pays the contractor the full amount that the sub claimed for, it should flow straight down. The complications would arise where there is a dispute: if it takes longer to certify whether the work was done properly, if either the owner or the contractor has a dispute with respect to the way the work was invoiced, whether there's entitlement to the work, and things like that.

The Chair: A subcontractor would invoice a plumbing job even though the work wasn't done properly. You wouldn't know if the work was done properly. You would invoice the federal government for that.

Mr. Fushman: No, I'm not sure I said that. The federal government might have a difference of opinion. It depends on the nature of the job.

In complex jobs there is even more grey area in discretion as to: We think it is red and you think it is dark red, and things like that.

The Chair: I'll leave that alone for other senators to follow up.

Would your law firm, Mr. Betts, have an interest in not seeing this bill come to fruition? Wouldn't it be more business for you?

Mr. Betts: We're lawyers. We'll make business out of anything.

The Chair: I'm sure you will, or you'll charge.

Mr. Betts: We're quite neutral on it. We would be quite interested as lawyers to see a system and a process that worked properly and didn't have unintended consequences and mistakes that aren't based on the real experience on the ground and didn't squeeze the wrong way.

To the extent we have enforcement of time periods in legislation versus imposing on a contractor a time period to pay that is different from what the owner must pay the contractor, we've created a dilemma on the project. That dilemma is always going to create tension on the project and ultimately more disputes.

We don't want to see is an incessant number of disputes that don't have a solution on the ground. In my personal view the solution in the U.K. to bring in adjudication on a very fast track dispute resolution process really has some merits. It can get parties to the table, resolve a dispute quickly and payment starts to flow. The dispute dissipates and people get on to doing what they should be doing, which is the work.

Senator Plett: Mr. Fushman, the chair actually asked a question which you suggested was leading. The bill actually says to pay for certified work, not for uncertified work. There is no dispute. We should not muddy the waters by talking about there may be a dispute, or there may be this or that. There isn't. It's certified. The architect, the engineer or whoever is in charge has certified that much work. That's what we're asking for. If $100,000 has been invoiced and the engineering certifies $75,000 then the contractor expects to get $75,000, not $100,000. We need to stop saying that we are asking for someone to pay for disputed work. We are not.

You raised a few points in regard to amendments. I'm aware of some of them and you even mentioned some of them. Let me tell you, sir, we are perfectly happy to work with reasonable amendments to this bill. We're happy to talk to you about it. They may be done at clause by clause. They can be done at third reading if you have something positive that would improve the bill.

I only want a good bill. I believe we're pretty close to that. I don't want to stall this any longer. This has been in the works for years and we need to go ahead. We're happy to do that.

You stated, Mr. Betts, that there was no proof. There is proof. There are all kinds of proof from different countries. Unfortunately, until we implement it in our country we can't have proof. You can't prove something is successful until you try it. Other countries have done it. You referred to the U.K. Let me talk about the U.K. and the adjudication rights.

Senator Ringuette was very helpful in assisting us to craft certain amendments that are now in the works dealing with adjudication before suspension of work. The adjudication part you're referring to is being implemented in the bill right now.

There are provincial aspects that do not apply to this federally. You have talked about the need to integrate lien rights with prompt payment and adjudication. Mercifully we don't have that problem federally.

The feds can and should lead. The working group said what I said it at the last meeting. The provinces say to the federal government: "Give us a law and we will follow it.'' We cannot in this case put the cart before the horse. You stated the feds need to lead. You were saying that maybe we need to wait for the provinces to get something before the federal government does something.

I've gone on a bit of a rant. I would be happy to hear your comments.

Mr. Fushman: Just to clarify on the question about certification, the question put to me was not within the framework of the way this bill would operate. It was: Why would a general contractor not always pay 100 per cent? Those are the circumstances as they stand today.

Another element of the question was to Mr. Betts' broader points. If we are trying to get at the root issue of why payments are slow or day sales outstanding might get stretched, there are a couple of components. Our view and that of the general contractor community and Mr. Reynolds have been consistent. Part of it is the image of a nefarious general contractor sitting on a pot of gold and earning interest on it. Maybe that exists in theory. Maybe it exists in some places. We don't think that is the pervasive issue. What we see from our experience in the general contractor community is that it is disputes.

To the extent that we are talking about certified funds, if there's a $10 million invoice and $8 million is certified and $2 million is in dispute, there is still the problem that whoever spent the $2 million is out the $2 million. There is still a cash flow impact there.

The Chair: Mr. Fushman, if the general contractors are on the side of the angels, why has there been reluctance for them to come before us? If they're paying within 30 days the bill has no effect on them whatsoever.

Mr. Fushman: To come before this committee?

The Chair: Yes.

Mr. Fushman: I got an invitation last Friday and I am here on Thursday.

The Chair: You were one. We have asked general contractors and there has been reluctance for them to come.

Mr. Fushman: I would be happy to get five here next week if you would like, honestly. They all want to talk.

The Chair: That would be interesting.

Mr. Betts: There were a couple of comments. One was on the proof or evidence of the effect of prompt payment. I have not done my own research. I was just quoting from the Reynolds-Vogel report where they have said there is limited evidence of the success of prompt payment. I trust they have done their research on prompt payment because I know them personally. I know they have done comprehensive research for their whole report which goes much beyond prompt payment. That was a quote from the report and not my own research, just to clarify.

You indicated the provinces are saying the feds need to lead. I'm not sure what provinces are saying that. I've been working with the attorney general of the provincial government. I know the Ontario government is working furiously to draft legislation on prompt payment. They are doing that.

I don't know what kind of consultation they are having with this body, but they had an attempt at the issue with Bill C-69. As people may or may not be aware, that came forward as a private member's bill. When it reached second reading and was brought to the larger industry, there was quite an outcry because it had been drafted without any broad consultation in the market and the industry.

The process that was undertaken with the expert review was to do just that, to consult very broadly in the country's province with the largest construction industry to get a real sense of the issues and the problems that result from the solutions we're trying to bring to the table.

The Chair: The Reynolds report didn't recommend prompt payment legislation for Ontario.

Mr. Betts: It did. The government had a private member's bill that died on the order table, and the government commenced an expert review of the prompt payment issue which resulted in this report.

In the report they recommended prompt payment, but they did so after consulting very broadly and doing a lot of research for over a year. It resulted in recommendations in the fall in a 500-page report that obviously dealt with more than prompt payment. It dealt with the whole Construction Lien Act. That is now moving forward in the provincial government toward legislation expected in the fall that will include prompt payment and adjudication.

Senator Ringuette: Mr. Betts, I really appreciate your comments and suggestions. I have read the Reynolds-Vogel report two times. You have to understand the basic premise of this report. When you say you want to harmonize with potential upcoming Ontario legislation, I expect the scope will be quite different. If you go through the recommendations in the Reynolds' report, there is quite a spectrum of issues in the construction industry.

We're looking at trying to resolve an issue. I agree with you that in the deliberations we have been having in this committee we need to put more emphasis on the dispute resolution mechanism and tighten up the same stream of recommendations that Reynolds and Vogel are moving forward. Mr. Betts, if the Senate were able to tighten the prescription and focus on the adjudication process of the bill, would you be agreeable?

Mr. Betts: To be clear, I am not disagreeable to the notion of prompt payment or even this legislation.

Senator Ringuette: Would you be more agreeable?

Mr. Betts: There are some technical aspects of the drafting of this legislation that don't work properly. We have alluded to some of them at the table today.

It sounds like amendments are already in the works. There has been an even deeper dive on those issues and problems through consultations in a wide way in the industry to ensure that the unintended consequences of prescribing a payment period are done right. It would be beneficial to see the results which we expect to see in the spring.

Senator Ringuette: On the provincial level.

Mr. Betts: On the provincial level. The provincial legislation, as you noted, is dealing with a broader market. It still is dealing with Crown corporations and the government in its payment obligations. They are not exempt from the prompt payment regime that is coming in Ontario.

Senator Wetston: I am an Ontario senator and have worked a lot with the Ontario government. I know of what you speak when you speak about the attorney general ministry what they are doing.

If Ontario passes this bill, do you think it would bind general contractors who contract with the federal Crown on public works in Ontario? Or, are you going to say you don't know because it's a constitutional question?

Mr. Betts: It is a constitutional question and I am not a constitutional lawyer. I have been paying attention to this debate because it is very interesting. I have some clients who work for Crown corporations and we face this issue fairly regularly.

What I found is that it's mostly fairly clear but often isn't. We will not get into the nitty-gritty about constitutional debate here, but the type of construction work and the purpose of the work they are doing matters even though it's a federal project or the federal Crown. There is jurisdiction to say that the provincial legislation would apply to some of the work, even though the ultimate owner of the project is the federal Crown.

It isn't always crystal clear. There are issues that need to be carefully laid out. That doesn't answer the question, but the provincial laws in terms of their applicability to a federal project would depend on the nature of the work. I understand from constitutional case law there are works that are not essential to the federal undertaking. If it's not essential to the federal undertaking then provincial jurisdiction could or would apply.

Senator Plett: Mr. Betts, you have said a few times that the Reynolds report said there is not enough evidence. Yet Reynolds obviously thought there was enough evidence because he recommended prompt payment. Somewhere along the line he didn't decide there was no evidence but let's do it anyway.

Did Reynolds not in fact say there has been limited success with prompt payment in the U.S.? The reason there has been limited success there, sir, is they don't have adjudication. Their prompt payment legislation allows for disputes in good faith to excuse the payment obligation. You can guess what happens then. Did Reynolds not say that there was limited evidence of success in the United States where there is no adjudication?

Mr. Betts: Senator, I was quoting the limited evidence of cost benefits in what they had said.

Senator Plett: He did say success, sir.

Mr. Betts: At any rate what you are reporting would be consistent with my main point. We can talk all we want about prompt payment. I don't disagree that legislating and enforcement of a prompt payment regime is a good thing. However, if at the end of the day you don't have a fast-track dispute resolution mechanism, any prompt payment legislation you pass will not have the impact and effect we want it to have. It will not solve the problem.

The problem is that delayed payments in my experience are largely due to disputes over the amounts. As a result payments get delayed. When people don't want to pay they might even invent disputes in order not to pay, but that's still a dispute. The benefit of adjudication, a fast-track dispute resolution, is that it will clear that out of the way and get cash flowing on a project.

In fact that is the experience in the U.K., where people know that the adjudication will resolve these disputes quickly so there is no point to invent reasons to dispute payment. If it's owed and it has been certified, they will pay it. If they dispute it, it will get adjudicated. They will have to pay it anyway, so why bother going through the process? That is the experience, from what my partners tell me, in the U.K.

Absolutely I would expect that prompt payment legislation without some fast-track dispute resolution mechanism in the U.S. would not be effective. Without prompt payment and adjudication you would probably have more success.

Senator Plett: What I understand most from the testimony is that people who are owed the money seem to want it and the people who will collect benefits from not having it seem not to want it. Everyone who will benefit from being paid on time wants it. Those who will benefit from there being disputes and legal action, and so on, don't want it.

Mr. Fushman: May I respond to that?

The Chair: Sure.

Senator Plett: I want to qualify that yesterday there was as much testimony saying that the government wasn't paying as there was saying that the general contractor wasn't paying. You need to at least understand that this was not a witch hunt against general contractors by any of the trade contractors.

Mr. Fushman: Fair enough. I would clarify my remarks that we are not against this. We are saying basically at the core there is general consensus support for the Reynolds approach. Whether that is open heart surgery or fingernail trimming of the bill is up for debate, but in broad strokes we support the Reynolds report, which in short is prompt payment tied to 30-day payment from invoicing. Parties can negotiate the invoicing terms and a meaningful adjudication process and control around suspension.

Basically if you give us Reynolds, the general contractors' community will be supportive.

The Chair: We will suspend for a second to clear the room and then meet in camera for five minutes to plan next week.

(The committee continued in camera.)