THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE
OTTAWA, Thursday, May 16, 2019
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:31 a.m. to study the subject matter of those elements contained in Divisions 1, 5 and 26 of Part 4, and in Subdivision A of Division 2 of Part 4 of Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019, and other measures; and, in camera, for the consideration of a draft agenda (future business).
Senator Douglas Black (Chair) in the chair.
The Chair: Good morning. Welcome to members of the 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 Doug Black. I am a senator from Alberta and I chair this committee. I now invite my fellow senators to introduce themselves.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wetston: Howard Wetston, Ontario.
Senator Verner: Josée Verner from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
Senator Campbell: Larry Campbell, British Columbia.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Wallin: Pamela Wallin, Saskatchewan.
The Chair: We are, of course, assisted in our work by our clerk and the analysts. Today we are continuing our study of all our parts of four divisions of Part 4 of Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019, and other measures. Honourable senators will know that our committee must report our findings to the Senate by no later than June 6 of this year.
Today we are dealing with Division 26 of Part 4 which concerns the enactment of the federal prompt payment for construction work act. It gives me great pleasure to welcome our panellists today beginning with our distinguished colleague, the Honourable Senator Donald Plett. Thank you for joining us today. Congratulations on the work you have done to get this to this point. Our committee last heard from Senator Plett during our study of Bill S-224, An Act respecting payments made under construction contracts in February of 2017. We look forward to hearing the senator’s comments regarding Division 26.
I am also pleased to welcome from the National Trade Contractors Coalition of Canada, Bob Brunet, Executive Director, Canadian Roofing Contractors Association; and from the Surety Association of Canada, Frank Faieta, National Vice President, The Guarantee Company.
Thank you all for being here today.
Hon. Donald Neil Plett, Senator, Senate of Canada: Thank you, chair, and thank you, colleagues for including me. Some of my remarks you may have heard a few years ago for those of you who were on the panel. It’s a little sad that it was a few years ago when you heard these remarks and now we are where we are.
I want to start off by reading the first paragraph of the overview:
Bill S-224 was introduced in the Senate on April 13, 2016, by Senator Plett, Conservative. Bill S-224 aimed to strengthen the stability of the construction industry and lessen financial risks by providing for timely payment under construction contracts involving government institutions. It would apply to construction contracts between government contractors and subcontractors at all levels of the supply chain.
It is a pleasure to be here and to present on this bill that has been far too long in the making. As I said, April 13, 2016.
Many of you know that 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 contract 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 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. Canada is the outlier.
What sets the construction industry 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 projects.
More often than not, the prime contractor will then subcontract various segments of the construction project to specialized trade contractors. Typically these 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 other trade contractors.
As small-and medium-sized business owners will understand, a trade contractor’s access to bank credit is often limited and their dependence on cash flow is high. Trade contractor’s revenues are subject to unpredictable delays without any flexibility on their payables.
Payments to Canada Revenue Agency and to Workers’ Compensation must be paid monthly without delay and wages need to be paid weekly or biweekly. Payments for materials and equipment rentals must be made within 15 to 30 days.
The fundamental cause of the late payment problems is the unequal bargaining power between contractors and 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 work. Most trade contractors depend on subcontracting for their survival, either from a general contractor or another trade contractor. No contractor can afford to be struck from a bidder’s list.
Public Works has recognized there is a problem and thus has tried a series of administrative measures in an attempt to solve the problem. Unfortunately, none of them has worked as they do not get to the heart of the problem.
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 these remedies. 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 in dispute.
Currently, if a subcontractor 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 needs to stop.
The Canada prompt payment act, as I put it out and really is largely mirrored, contains measures that will finally put an end to this systemic problem when it comes to federal construction work. This part of the bill stipulates that government institutions must make progress payments to a contractor for construction work on a monthly basis or shorter intervals provided in the construction contract.
I’m pretty much done. 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. I am thrilled that this is now being corrected and will be explicit upon the passage of this legislation.
In addition, the right to terminate a contract or the ability to collect interest on late payments.
This bill also provides for a comprehensive dispute resolution process as well as a right to information for contractors and subcontractors involved in any dispute resolution. Most construction work that happens in Canada occurs outside of federal projects, meaning that this legislation, of course, will only solve part of the problem. However, provinces are moving forward on implementing similar legislation.
The Reynolds report, which we have all heard of here in this committee, in Ontario on this topic has recommended that the province enact comprehensive legislation. I am thrilled to see that these recommendations from the commission largely mirror what we had proposed in Bill S-224. Ontario and Quebec have both committed to introducing prompt payment legislation, as has the Province of Manitoba, my province.
When the United States enacted legislation federally, it did not take long for individual states to follow suit. It is my hope that enacting this legislation will have a similar ripple effect on Canadian provinces, meaning every construction worker in Canada will be paid on time for the work that they completed.
Colleagues, this is not a partisan issue. People should be paid for work 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 hardworking Canadians in the construction industry. Those, chair, are my comments. When we are done, I’m happy to answer questions.
The Chair: Senator, thank you and again congratulations on the work you have done on this file.
Bob Brunet, Executive Director, Canadian Roofing Contractors Association, National Trade Contractors Coalition of Canada: Good morning. My name is Bob Brunet. I’m the Executive Director of the Canadian Roofing Contractors Association and a director of the National Trade Contractors Coalition of Canada, or NTCCC as it’s known. I want to thank the committee for inviting the NTCCC today to provide remarks on Bill C-97.
The NTCCC is the voice of trade contractors in Canada. Trade contractors perform upwards of 80 per cent of construction work in this country and employ the majority of construction workers. Our members include approximately 12,000 mostly small- and medium-sized businesses. One of the most important issues since NTCCC’s inception has been getting paid for work properly completed. We are very pleased to say that the federal prompt payment for construction work act in the 2019 Budget will introduce these rules federally.
In the last 10 to 15 years, payment delays on projects of all sizes and in all Canadian jurisdictions have risen dramatically. Delayed payments create serious inefficiencies including project delays, fewer competitive bids and less opportunity to invest in capital equipment. They also lead to lower employment. In the end, fewer jobs are created. The impact of government investments is reduced. Fewer apprentices are hired. In worst cases, small businesses go bankrupt. We need legislative and cultural change with regard to payment practises. Our members are very excited that this legislation is included in the budget.
The federal law may also serve as a standard that can facilitate prompt payment regimes in provinces and territories that have not yet established their own. There was a great deal of consultation and industry input into the creation of the language in this bill. It covers a complex multilevel payment system that has many permutations. There was a detailed report with recommendations developed from those consultations plus additional research. We are very pleased with the result.
The industry, together with legal subject matter experts, look forward to working closely with PSPC to ensure implementation of the federal prompt payment regime. Once the regulations are in place and industry and its advisers can process the language systematically in whole, we’ll be able to determine what amendments need to be made. We anticipate this will result in a national industry-wide transition that will increase the promptness of payment across all construction projects.
In light of this, we wish to thank key parliamentary champions who did significant heavy lifting to ensure this issue was addressed, especially the Honourable Judy Sgro and Senator Don Plett, who have been with us since day one, as well as Parliamentary Secretary Steven MacKinnon and Minister Qualtrough. Their efforts will lead to very positive outcomes for tradespeople, our trade contractor members and the construction industry at large. Thank you.
Frank Faieta, National Vice President, The Guarantee Company, Surety Association of Canada: Thank you, Mr. Chair, honourable senators and committee members.
We represent the firms that guarantee the performance and payment obligations of project contractors. We protect project owners and taxpayers as well as subcontractors and suppliers from losses that come from contractor failure. We fully support this federal prompt payment initiative.
Recently the committee heard from PSPC who discussed the extensive report prepared by industry experts — the Reynolds Report — with 53 recommendations now embedded in the current proposed legislation. Not addressed was a recommendation to hold further industry consultations on the impact of contractor insolvency on the payment of subcontractors and suppliers. This was due to time constraints. The problem with the measure as it stands is that if a contractor fails or becomes insolvent, there are no specific provisions to ensure payment of unpaid subcontractors and suppliers, to complete the project and cover any shortfall.
Note that section 4 of the proposed legislation reads:
The purpose of this act is to promote the orderly and timely carrying out of construction projects. . . by addressing the nonpayment of contractors and subcontractors who perform construction work for the purposes of those projects.
The legislators of the new Ontario construction act recognized the issue of insolvency risk and included section 85 requiring 50 per cent performance and payment bonds on publicly funded construction projects above a prescribed threshold to mitigate this risk. We submit that the underlying principles of prompt payment cannot be fully achieved without also ensuring certainty of payment by providing for the injection of funds to pay subcontractors and suppliers in the event of insolvency of the project contractor. Only surety bonds can provide this protection.
In 2018, our industry paid out more than half a billion dollars from construction insolvencies including the recent largest single contractor loss in our industry’s history. We recommend that the legislation be adjusted to add a one-sentence placeholder to section 23 enabling the Governor-in-Council to prescribe regulations to address insolvency risk through performance and payment bonds on federal construction projects.
This will allow time for the additional consultation recommended in the Reynolds Report and that may be necessary as part of the regulation-drafting process. It will also provide the flexibility to address insolvency risk at a later date within the framework of the act. I would like to thank the members of the committee for their attention. I’d be happy to entertain any questions you may have.
The Chair: Thank you. We are going to move to questions.
Senator Stewart Olsen: Thank you all of you for appearing. In particular thanks to Senator Plett who raised this issue and has pushed forward for years. I’m glad that the government paid attention. The question that I would have for you, which is a bit of a concern for me, is nowhere in this legislation does it discuss the obligations of the contractors to their customers.
We have a kind of lopsided — you have to pay but nowhere does it say — and this is raised from my constituency who said that’s great we have to pay them, but they didn’t show up on time, they didn’t come when you said you were coming, all of those things. I think the balance is missing.
Senator Plett: Thank you, Senator Stewart Olsen, for the question. I beg to differ, because it is clear that prompt payment is subject to performance and approved invoices. If there isn’t performance, the customer indeed has the right to go to adjudication and not pay the contractor. This is entirely focused around both sides fulfilling their obligations. The legislation is quite clear that any time there is adjudication, any time I ask to be paid, I have to have proven the certifier of the work is certifying that I have performed up to standard. I think it is in there.
Senator Stewart Olsen: Thank you, senator.
Senator Wetston: Thank you for coming and talking about this important subject. Senator Plett knows that this was one of the first matters I dealt with when I was appointed to the Senate and supported your bill, as you may recall. You might not recall that, but I have to at least mention it.
I think it’s important legislation. This may be more Senator Plett can help me with, but at the time the Reynolds Report was being developed there were a lot of recommendations. The general sense was that it is a very good report. It was also dealing with liens in Ontario. We are now a couple of years later, as you say.
Can you give me a better sense of the status of the report? I think you are mentioning many of the recommendations were included in this legislation, which is a positive thing, but what hasn’t been included so far? Has the change of government in Ontario slowed down the opportunity to have the Reynolds Report implemented in any way? Do you have any sense of that?
Senator Plett: I have a feeling Mr. Brunet might be able to give you a better answer. I will just say this, Senator Wetston. Thank you very much for your support back then and your anticipated support now. Bill S-224 was done in conjunction with Reynolds Report. We had the construction lawyers dealing with Reynolds back then. The two bills very closely mirrored each other. As far as the progress is concerned, since I’m not a contractor right now, why don’t I ask Mr. Brunet or Mr. Faieta.
Mr. Brunet: On the Ontario side, the Construction Act was passed in December 2017. Following Royal Assent, the legal experts, Bruce Reynolds and Sharon Vogel helped out on that bill, worked with government lawyers on the rules and regulations for that act. After that process, the amendments were suggested. The amendments were done to make the law airtight. That was approved, I think, in 2018. Now what they’ve done is the lien portion of the Construction Act was put into place in 2018 — I think it was June — and the prompt payment portion is going to be put in place in October 2019. It’s been about a two-year window to put together the recommendations.
Senator Wetston: To follow up, I thought that the Ontario legislation was broader in the sense that it was beyond simply Ontario government contracts. This legislation is important but somewhat narrower. I thought that legislation was broader and moving into both the public and private sectors, or am I incorrect?
Mr. Brunet: I think it only relates to Ontario-specific contracts.
Senator Wetston: Of the government and Crown corporations and such?
Mr. Brunet: I’m not sure if it applies to Crown corporations. I know Saskatchewan and Nova Scotia have taken the template from Ontario and they have received Royal Assent.
Senator Wetston: I wonder if you could provide that information. The general application of this can be much broader. I’m just wondering about the breadth of it. I think you say this is 2 per cent, for example. There are many aspects of contractual relations that are not covered by this legislation. I’m wondering whether you could provide a bit more information to the committee if you think it’s relevant for us to understand the breadth of it.
Senator Plett: I’m happy to provide that, Senator Wetston. Indeed, this particular piece of legislation is very narrow. I am also of the opinion that in the provinces it deals only with theirs, not with the public. We will get you that information for sure. Thank you.
Senator Wetston: Thank you.
Mr. Faieta: If I could add, there are elements of the legislation in Ontario that apply to all construction projects. There are other elements that apply to just public contracts, for example, prompt payment is all contracts. Then there is lien legislation that doesn’t apply. You are correct, senator, it’s a comprehensive legislation that was built around one of the Reynolds Reports. In fact there are two. One is prepared for Ontario and the other for PSPC, both essentially dealing with prompt payment. The first, how to embed prompt payment in the construction legal ecosystem of the province. The other report for the federal government was more in terms of how to frame legislation so that it would dovetail with provincial legislation and not result in any conflicts around paramountcy or constitutionality.
The Chair: Thank you, gentlemen.
Senator C. Deacon: Senator Plett, I empathize with the challenges of pace and the speed at which things move around this place. Perhaps we could work together a little more on how to solve that problem. It’s a consistent one for sure.
When I look at this, a few things come to mind. I always think about how people — this garbage bag is full of water and you grab it and it moves there. Is there a challenge where contractors could put in place contracts upfront with their subs that would, in the end push payment so late that there wouldn’t be as many progress payments, for example, and shift the burden in different ways with the way this is written?
Senator Plett: Would you mind repeating the first part of that? I’m not sure I followed.
Senator C. Deacon: About empathizing?
Senator Plett: No. I followed that. Thank you.
Senator C. Deacon: Is there a way for contractors to get around this legislation by shifting the payment schedules instead of having a series of progress payments to put the burden towards the very end of a lot of work, and in the end find a way around this? I wondered about that when I looked at it.
Senator Plett: No, I don’t believe, Senator Deacon, that there is. One of the things that prevents that is the right for a contractor to pull off the job. Today, the contractor has no right to pull off the job. I was a plumbing and heating ventilation contractor, a mechanical contractor. If I pulled off a job site because I wasn’t being paid, the general contractor had the right to give me 24 hours’ notice to get back on the job. If I wasn’t on the job, he could hire somebody to go out and work for me, even though he wasn’t paying me and back charge me for whatever that would cost, which would be significantly more than if I was doing it myself.
This legislation, senator, allows me after the prescribed period of time if my invoices have been approved by the certifier, the architect or engineer, to pull off the site and it has to be adjudicated. I am entitled to charge interest. That will prevent this from happening. What’s happening right now is people saying I’ll pay you next week, just get back on the job. They are saying they haven’t received the money. Now we will be able to see exactly what they have received.
Yes, I suppose if I want to take a general contractor’s word, but legally I would say no.
Senator C. Deacon: Really my question is that in setting up an agreement with a sub up front, eliminate all those progress payments and say we’re going to pay you in bulk. People want these jobs. The subs, as you said, are at the bottom of the pyramid and fighting to get these contracts.
Senator Plett: On Bill S-224 they could not. Whether this mirrors that part of Bill S-224, maybe one of the other gentlemen can speak to that. On Bill S-224 they could not.
Mr. Faieta: I think the proposed legislation would be designed around contractual entitlement to payment. Fundamentally, if someone were to design a contract with only one payment at the end of the job, then that contractual entitlement would only materialize at the end of the job. There would be one payment and there would inherently be a delay and no one would get paid anything until all the work was done. I think that’s been discussed in the past. It’s generally thought that would not be the case.
Senator Plett: That was, in fact, milestone payments.
Mr. Brunet: From a general contractor’s perspective, they want to get paid early; they want the money. Whatever terms of payment are between the owner and the general contractor should be the same between the general and the subs.
Senator C. Deacon: That tends to be the case?
Mr. Brunet: Yes.
Senator Marshall: When I read the legislation, what struck me as being peculiar is how detailed it is. Scattered throughout, it establishes time frames like no later than the twenty-first day, twenty-eighth day, the forty-second day, the thirty-fifth day. It’s riddled.
Has someone actually gone through this? Are those time frames reasonable?
Mr. Brunet: The time frames that you have in that document are pretty much the same as what is in Ontario, which is going to come into effect in October. It will be a learning curve for a lot of people. I think once they catch on the flow of money is going to happen.
Senator Marshall: Okay, because it’s embedded in the legislation. It’s not in the regulations.
Mr. Brunet: Yes.
Senator Marshall: Is this the best standard? Is this a standard or are those time frames enforceable? If those time frames aren’t met, do you go through the dispute resolution process? How does it work?
Mr. Brunet: In Ontario, once the adjudication process has started it will take 46 days to get your money.
Senator Marshall: That time frame?
Mr. Brunet: Yes, and that’s much quicker than the 75 to 80 days right now that a subcontractor waits.
Senator Marshall: It will be enforceable?
Mr. Brunet: Yes.
Senator Marshall: There’s a section there on partial payments and it goes through a formula. You’ve looked through that and that’s fine with you?
Mr. Brunet: Yes. As far as partial payments go, if an invoice is submitted for $10,000 and only 50 per cent of that was properly completed, then that’s all that should be paid.
Senator Marshall: I’m used to seeing that sort of detail in the regulations, but the legislation itself references the regulations. I think the only thing I remember seeing related to the regulations was the interest rate. Do you have any comments on what you think you’re going to see in terms of interest rate or what you’d like to see and what else you’d like to see in the regulations?
Mr. Brunet: I know NTCCC’s legal team has started discussing the regulations with PSPC. However, I haven’t been at the table for that as of yet.
Senator Marshall: You don’t know what’s going to be in the regulations? There can’t be much left.
Mr. Brunet: There’s probably a few items they’re going to add, but I can’t see a lot of things going into it.
Senator Marshall: You don’t have any comments on the interest rate?
Mr. Brunet: I thought I read somewhere it was 2 per cent.
Senator Marshall: Oh, 2 per cent a day?
Mr. Brunet: Was it 2 per cent a day or a month?
Senator Marshall: I’ll just leave it. Two per cent a day.
Senator Plett: I think it was 2 per cent a month.
Senator Marshall: Okay, probably prime. Thank you.
Senator Duncan: Thank you to the panel. My apologies to everyone for my late arrival. I’m the senator for the Yukon. Of course we have a bit of a different experience in the North. There is limited but some federal work to which this would apply. I have a number of contractor friends who will be very interested in my discussions with them over the break week about this legislation.
You spoke about a number of other provinces. First of all, to Senator Plett, is it the intention that this be the standard bearer for the country? There’s talk about Ontario and Saskatchewan has the legislation. I’m looking to hear what other provinces have it. Is this intended to be the standard bearer and the rest of the provinces will follow?
Senator Plett: Thank you very much, senator. I haven’t done a whole lot of work in the Yukon, but certainly our company did a lot of work in the Arctic, the Northwest Territories, in the western and eastern Arctic. Most of that work was federal. Working in those difficult conditions, you’re out a whole lot more money when you don’t get paid. I hope that the people in the Yukon look favourably on this.
Ontario and Quebec have indicated their intention; Manitoba has as well. It has been introduced in Manitoba already in the legislature. Mr. Brunet, I think, said Nova Scotia —
Mr. Brunet: And Saskatchewan.
Senator Plett: — and Saskatchewan as well. Provinces are following suit.
This was my argument, senator, two years ago. The pushback I got from the federal government is they thought the provinces should enact it first and then the federal government would follow. I felt the opposite. I felt the federal government should act and the provinces would follow. Indeed, some of them have taken the lead; some of them are following. In the United States, after the federal government did it, the states all followed. It has already been indicated by the provinces that they will all follow suit.
I think this will eventually fall into private contracts, where the contracts will clearly state these conditions if the provinces and the federal government are doing this.
Mr. Brunet: To date, a lot of the provinces have used the Ontario model. That’s what they’re adopting, mainly because it has lien legislation, whereas in the federal prompt payment act, you can’t lien the Crown. That’s the main reason why the Ontario model is being used in Saskatchewan, Manitoba and Nova Scotia. Also, Quebec has launched a pilot project on prompt payment legislation.
Senator Duncan: Would you forward that more detailed information through the clerk on that Ontario legislation? You have no information about whether any of the territories are following?
Mr. Brunet: I don’t know if a prompt payment territories group has stood up at this point. It’s something I could check into.
Senator Duncan: If you wouldn’t mind. Thank you.
Senator Dagenais: Thank you to our three witnesses. People often say that doing business with the government means waiting a long time to get paid. I don’t know if that’s the case, but I’ve been here for seven years and I see scaffolding all over the Hill.
It would be interesting to know whether payment delays are a standard practice of the government or whether it is negligence on its part.
Senator Plett: Senator Dagenais, it’s not the government that is the problem for the most part. The government, without question, is a little late sometimes, but they are not the target here. The target here is the contractors, starting at the top of the food chain, if you will, with the prime contractor that isn’t paying his or her subtrades and going down that food chain. That’s where the problem is. That prime contractor has indeed been paid by the federal government. They are using Mr. Brunet’s money to fund other projects.
All of a sudden, bang. Mr. Faieta here is in the surety business and he gets caught up in this because some contractor has declared bankruptcy. Now he’s got to come in and try to pick up the pieces. In the meantime, three or four other contractors have gone bankrupt, not because they haven’t done good work, not because they aren’t indeed solvent if you take their receivables, but they cannot make payments so people are calling them in. It is companies using one pocket of money on one job to fund another job somewhere else. That is typically where the problem starts, and then that just goes down from there.
I hope that answers your question.
Senator Dagenais: Yes.
We also talked about arbitration delays. When you proceed by arbitration in the event of non-payment or late payment, what are the possible delays before you’re reimbursed?
Mr. Brunet: The arbitration process will take roughly 46 days.
Then there is a decision of the arbitrator.
The arbitrator’s decision is binding. The monies must be paid immediately after that period. If they’re not, as Senator Plett said, work can be suspended. The general contractor cannot challenge because the arbitrator’s decision is binding. However, at the end of the job if there’s still an issue, action can be taken there, but the funds have to be remitted.
Prompt payment legislation is all about being paid for work that’s properly completed, and you have to keep that in mind. If it’s not properly completed, then payment should not be made.
Senator C. Deacon: I just want to keep going on the insolvency side of things. Senator Plett, that was not part of Bill S-224, if I remember correctly.
Senator Plett: The surety part of it, no, and it wasn’t part of this. I think you may have received a suggestion of an amendment from Mr. Faieta and I will let him speak to that. It was not part of Bill S-224. In light of the fact that when I read what Surety Canada is proposing — I want to make a comment and then I’ll let the experts speak to it — the Governor-in-Council may make regulations. Because of the word “may” in there, I could support this.
There are many sizes of projects with the federal government. There are many sizes of contractors with the federal government. There are many times when a small mom and pop shop is going about doing their work and doing small contracts and for some reason or another, the federal government is going to do a small project in their community or their town and they would like to bid on it. But they’ve never had bonding in their life, they’ve never needed it. Now all of a sudden they would require bonding and may or may not qualify, could not say that they could do a small $100,000 project.
That is why I would not support that if it said “must,” but can support it if it says “may,” because I agree that on projects of certain sizes, I believe that there should be surety. Surety Canada, the bond people, need to be involved because contractors can go insolvent. Having said that, it is generally as a result of a long-going process. If we have prompt payment, there will be fewer people going broke because they will be paid and even the top of the chain, companies won’t be into them for millions of dollars possibly if we have prompt payment where they need to be paid.
Right now if a contractor is struggling and they tell me, “Don, keep on working, you’re going to be paid next month,” I’ve got no choice. I can’t pull off the job he’s going to replace me. I have no choice but to keep on working without money. All of a sudden, I do this for three or four months and the general contractor declares bankruptcy. I may as well take the keys to the bank and say, “Here, I’m done as well.” I think with prompt payment there will be less of that. I support that on certain sizes of projects it should be there and I can support that.
Senator C. Deacon: I just want to get to the question. Was there a thoughtful reason as to why you left bankruptcy out of Bill S-224? Is there a reason why you avoided dealing with that in that bill?
Senator Plett: No, I don’t think there was. I basically did the bill, Senator Deacon, together with the different construction groups, and they felt that the problem was not as inherent if we had prompt payment — sorry, I maybe answered your question before you asked. But the answer is the same: They basically believed the problem wouldn’t be as big if we had prompt payment.
Senator C. Deacon: Thank you.
The Chair: Gentlemen, thank you very much, that was very helpful. Again, Senator Plett, congratulations on this work.
Senators, we’re going in camera for a few minutes.
(The committee continued in camera.)