Sask. Construction Association says province's failure to protect subcontractors is 'a travesty'

The Saskatchewan Construction Association says new provincial legislation aimed at ensuring contractors and subcontractors are paid in a timely manner leaves out the tradespeople most vulnerable to slow payments.

Minister of Justice Don Morgan told CBC that the government didn't intend for the prompt payment amendment to the Builders Lien Act, passed in the spring of 2019, to apply to the residential sector.

"We said right from the beginning we knew it was problematic for home builders and we were inclined to give an exemption right from the outset," Morgan said.

Mark Cooper, the president of the Saskatchewan Construction Association (SCA), said the province is making a mistake by planning to exempt parts of the construction industry like the residential and mining sectors.

"Any exemption falls short of the standard that we should be seeking in this law," Cooper said.

He said the law should apply equally to everyone.

"I absolutely think it's a travesty," Cooper said. "Speeding laws don't apply to people just driving green cars, right?"

Last week, CBC told the story of Jason Merkl, who said he had $175,000 in liens placed on his home by subcontractors despite the fact he had paid his general contractor, Harmony Builders, the full amount of the build, around $500,000.

In a post on CBC's Facebook page, the SCA wrote "this is exactly why we have been pushing so hard for prompt payment legislation to be put in place for Saskatchewan. This will ensure all contractors and suppliers are paid for work completed in a timely manner."

The legislation was passed more than a year ago, but it's still not in force because government and industry are continuing to consult on regulations. A Ministry of Justice spokesperson said the new law should be in force early next year.

Right now, the timing of payments in the construction industry is unregulated in Saskatchewan. It's not uncommon for contractors to have to wait 60 to 90 days or even longer to get paid.

This new law would change that by imposing a series of fixed, cascading payments. Owners of projects would be required to pay invoices from general contractors within 28 days. The general contractor would have to pay subcontractors within seven days of receiving that payment.

In addition, the province is introducing a new dispute resolution process which a government news release says should "reduce the number of payment delay cases that end up in court."

However, at this point the government says none of these provisions would apply to the residential sector.

An opaque process

Cooper described the process for how this legislation came together as "unusual" and "muddied."

He said this legislation has been the top priority of his organization for years. The SCA represents about 1,300 construction firms in the commercial, industrial, institutional and multi-unit residential industries.

Cooper said this sort of legislation is common in the construction industry around the world, but that Canadian provinces are dragging their feet.

He said prompt payment legislation exists in virtually every state in the U.S. and it's common across Europe. In Canada, only Ontario has legislation in force, while Saskatchewan and Nova Scotia are currently developing regulations.

Cooper said his entire organization, which includes general and subcontractors, is fully behind the new law.

"Those companies all very much support prompt payment because they're the ones who are often victims of delayed payment," Cooper said. "I don't think I've ever spoken to a contractor that hasn't expressed concerns about getting paid," he said.

Morgan said the government introduced the legislation at the request of the SCA and asked the organization to play a key role in implementing it. Morgan said he told the SCA the Saskatchewan government would provide some supervision for the legislation "but it will be for the benefit of your general contractors, your subtrades."

Morgan asked the SCA to lead in consultations and in the development of the dispute resolution system.

Cooper said this was an unusual role, but one the SCA accepted because it was so committed to this law.

"We were in a weird spot of defending a bill we didn't write although we were supportive of it and of sort of being in the middle of doing consultations but not the party responsible for actually drafting the bill," he explained.

He said that move placed the SCA at odds with other industry associations, "because of the sense that one of us [the SCA] was responsible for a law that would apply to all of us."

"It was muddied. I felt like who was responsible for this was muddied," he said.

Contentious consultation

For a time, the Regina and Saskatoon home builders associations were part of that process, but they soon decided this new law and the SCA led process weren't for them.

Chris Guerette, the CEO of the Saskatoon and Region Home Builders' Association, said the SCA wasn't interested in listening to their views.

"There's not once when feedback was taken from our industry. So it was almost like we weren't there anyway," she said.

She said her organization didn't want to be dictated to by some other industry lobby group.

"I would not say that the government is driving that legislation. I would say that there is a strong lobby of companies that's driving that," Guerette said.

One point of contention is the 28-day timeframe for project owners to pay invoices to general contractors. The Regina and Saskatoon home builders associations wanted that timeframe to be 31 days. They also think the seven-day time frame to pay sub trades is too tight. They want that extended to 14 days.

Guerette also doesn't like the proposed dispute resolution process, which she describes as "a whole other level of court system."

Cooper said his organization consulted with the home builder groups in good faith but that ultimately, as a lobby group, it's the SCA's role to represent its members.

"We do not have a duty or a responsibility to consult with others. We chose to engage them in dialogue to see if we could reach consensus. We didn't reach that consensus," said Cooper. "If there is a duty to consult that duty rests with the government, not with the industry."

Status quo works for home builders, says minister

The associations brought their concerns to the minister.

"So the home builders association said 'we don't want to be in a prompt payment regime,'" said Morgan. He said the associations told him, "we have an existing structure that works for home builders and we think works for the subtrades."

He said that the current structure involves general contractors paying the subtrades when they get paid, or paying when mortgage advances come from the bank, instead of on a fixed timeline.

"In spite of the fact that those payments may not be made for an extended period of time, the subtrades have lived with and have accepted that," said Morgan. "We said right from the beginning we knew it was problematic for home builders and we were inclined to give an exemption right from the outset. "

Cooper said he worries the minister is making a mistake by assuming that the home builders associations speak for the subtrades.

He said many of those companies, painters, electricians, plumbers and more also belong to his organization and they are strongly in favour of the law.

"I really do think it's unfair to characterize the position of the home builders association as reflective of most of the people who actually build homes," he said.

He said the boards of the construction associations are heavily weighted toward general contractors and they are calling the shots.

"The few voices are carrying more weight than they should in representing an entire sector," he said. "They have concerns about how the legislation changes the status quo to move toward a model where they are now responsible for more of the financing of their project and the cash flow of their project as opposed to their subcontractors being responsible for that in the current model," said Cooper.

Vance Shordee, an electrical contractor in Regina, said he's disappointed the minister is planning to exempt the home building sector because the current system absolutely does not work for him.

He said his company, Shordee Services, is owed more than $100,000 by Harmony Builders, which earlier this year offered to pay the company 20 cents on the dollar.

He said this is the third time a general contractor has failed to pay a significant bill.

He said in those other two cases, "by the time the property and the mortgages were paid off there was no money left over to pay any of the trades."

"Some home builders will build buildings on the credit of their trades basically," he said.

'It's an old boy's club'

Jennifer Denauden, president and CEO of Regina based home builder Avana Enterprises, agreed with Shordee.

She said the new law makes perfect sense for Saskatchewan's home building industry, but it is being opposed by the middle-aged white men who run the home building industry.

"It's an old boys club," said Denouden. "The type of demographic we are working with is 'we've just always done it this way So why change it?' And that's just people's argument.

"They want to, I think, hold on to as much power as they can."

She said home builders in this province still operate the way they did decades ago.

"There's a lot of handshake deals in our industry still. Lots of developers and home builders aren't using contracts and they pay when they get their mortgage draws," she said, noting that often they don't know when that mortgage draw is coming.

Denouden said that by giving an exemption to the residential sector, the government has put the most vulnerable companies at risk.

"Some of the larger commercial organizations have legal divisions or finance divisions. Whereas a small residential contractor or supplier may not have that experience to protect themselves," she said. "So I'm quite surprised that they would exempt the residential sector."

Morgan said while he is still leaning toward giving the residential sector an exemption, the regulatory development is ongoing and he is willing to listen to arguments on both sides.

"At the present time we think it would be appropriate to give an exemption for home builders, but we have not finalized preparation or doing anything on it," he said. "We want to do some more consultation first."