CON-220 · Lesson 6 of 12 · 31 min

Prompt payment and adjudication

Late payment is the most common complaint in construction. Owners take weeks to certify, general contractors wait to be paid before paying their subcontractors, and the subcontractors at the bottom of the chain end up financing the project. Payment delays ripple outward into insolvencies, liens and disputes that cost everyone more than the money at stake. Legislatures in both countries have responded with prompt payment laws that set firm deadlines for paying invoices and, in some places, fast processes for resolving payment disputes. This lesson explains how those laws work and how they interact with contract clauses that make payment depend on being paid.

The problem prompt payment laws solve

Without statutory rules, payment timing is set by contract, and the contracts are written by the party with more bargaining power. A general contractor may promise to pay a subcontractor only after the owner pays it, and the owner may take sixty or ninety days. A dispute over one change order can be used to hold back an entire monthly payment. Prompt payment laws respond in three ways: they set maximum payment periods; they require the payer to give written reasons, within a short time, for withholding any amount; and they impose interest on late payments. Some add a fast-track dispute process.

How Canadian prompt payment works

Ontario was the first province to adopt a full prompt payment and adjudication regime, in force since October 1, 2019, and the model has been followed in other jurisdictions with variations. The core sequence under Ontario's Construction Act is:

  • The contractor gives the owner a proper invoice, at least monthly unless the contract provides otherwise. A proper invoice contains the information the Act requires: the contractor's name and address, the period covered, the work, the amount payable and so on.
  • The owner must pay within 28 days after receiving the proper invoice, unless it gives a notice of non-payment, in the prescribed form, within 14 days, stating the amount not being paid and the reasons. From January 1, 2026, an invoice is deemed proper unless the owner gives written notice of a deficiency within 7 days.
  • The contractor must pay each subcontractor within 7 days after receiving payment from the owner, for the subcontractor's share. If the owner did not pay the contractor in full, the contractor must still pay the subcontractor unless it gives its own notice of non-payment and undertakes to refer the matter to adjudication.
  • Late payments carry interest at the rate set under the Act or the contract, whichever is higher.

Adjudication backs up these deadlines. A party to a contract or subcontract can refer a payment dispute to an adjudicator chosen from a roster kept by the Ontario Dispute Adjudication for Construction Contracts (ODACC). The process is fast: the adjudicator generally decides within 30 days after receiving the documents, and the paying party must pay within 10 days after the determination. The determination is binding on an interim basis, meaning it must be paid even if the losing party later takes the matter to court or arbitration. From 2026, regulations widen the disputes that can be adjudicated and adjudication may be started up to 90 days after the contract is completed, abandoned or terminated.

Timeline ladder showing an invoice delivered on day 0, the deadlines for a deficiency notice, a notice of non-payment and owner payment, and the subcontractor payment deadline after the contractor is paid.
Key deadlines under Ontario's Construction Act. Other provinces follow similar patterns with local differences.

Worked problem

Building a payment calendar

A contractor delivers a proper invoice to the owner on March 3. Using the Ontario deadlines, when must the owner give any notice of non-payment, when must it pay, and when must the contractor pay a subcontractor if the owner pays on the last day?

Show solution
  1. Deficiency notice: within 7 days, by March 10.
  2. Non-payment notice: within 14 days, by March 17.
  3. Owner payment: within 28 days, by March 31.
  4. Subcontractor payment: within 7 days after receipt, by April 7.
  5. Diarize each date and an internal reminder two days earlier.

Answer: Non-payment notice by March 17; owner pays by March 31; subcontractor by April 7.

Prompt payment across Canada

Prompt payment is spreading, but unevenly. As of the time of writing (2026):

Prompt payment in Canada at the time of writing. Check current status; several regimes are changing.
JurisdictionStatus (time of writing)Core payment deadline
OntarioIn force since 2019; amendments in force January 1, 202628 days owner; 7 days down the chain
Federal (federal work)Federal Prompt Payment for Construction Work Act in force December 9, 202328 days; 7 days down the chain
SaskatchewanIn force March 1, 202228 days; 7 days down the chain
AlbertaPrompt Payment and Construction Lien Act; changes in force April 1, 202528 days; 7 days down the chain
ManitobaIn force April 1, 2025Prompt payment with adjudication
QuebecRegulation for public body construction contracts in force September 8, 2025Monthly cycle with fast dispute settlement
British ColumbiaConstruction Prompt Payment Act royal assent November 27, 2025; not yet in force28 days; 7 days down the chain when in force
New Brunswick, Nova ScotiaStatutes passed but not yet in forcePending

The federal Act applies to construction contracts with the federal government and their subcontracts. It sets payment deadlines like Ontario's and provides adjudication through the Office of the Federal Construction Adjudicator. Provincial regimes differ in their details, such as when invoices are deemed delivered, how adjudicators are appointed and which disputes are covered, so a contractor working in several provinces needs a summary for each.

Pay-when-paid and pay-if-paid clauses

Subcontracts often link payment to the general contractor being paid. There are two kinds of clause.

  • A pay-when-paid clause is about timing: the general contractor will pay within a reasonable time after it is paid, or within so many days after it is paid. If the owner never pays, the general contractor must still pay within a reasonable time.
  • A pay-if-paid clause shifts the risk of the owner's non-payment: payment by the owner is a condition precedent to the general contractor's obligation to pay. If the owner never pays, the subcontractor may never be paid.

Canadian courts have enforced clear pay-if-paid clauses in some cases but read ambiguous ones as pay-when-paid. Prompt payment statutes now largely override these clauses where they apply. In Ontario, for example, the contractor must pay its subcontractor within 7 days after it receives payment, and if it has not been paid in full it can withhold only by giving a notice of non-payment and undertaking to refer the dispute to adjudication. A contract clause that tries to avoid these rules is of no effect.

Worked problem

Calculating late payment interest

An owner pays a $240,000 proper invoice 25 days late. The Ontario interest rate applicable to the period is 4.8 % a year (illustrative), and the contract rate is lower. What interest is owed?

Show solution
  1. Daily rate: 4.8 % ÷ 365 = 0.01315 % per day.
  2. Interest: $240,000 × 0.0001315 × 25 = $789.04.
  3. The higher of the statutory and contract rates applies; here the statutory rate.

Answer: About $789.

Adjudication in practice

For a construction manager, adjudication changes the economics of small and medium payment disputes. A subcontractor owed $90,000 for a change order may never have sued; it can now start an adjudication by serving a notice, receive a determination within weeks, and be paid within days after that. Preparation matters: an adjudicator decides mainly on documents, so contemporaneous records, signed change orders, daily reports and correspondence carry the case. Adjudication also has limits. It is interim: either party can later take the dispute to court or arbitration. It suits payment and valuation disputes better than complex delay claims, and the short timelines are hard on a party that has not kept organized records.

Worked problem

Valuing a partial notice of non-payment

A $310,000 invoice includes a disputed change order of $42,000. The payer gives a timely written notice withholding $42,000 for stated reasons. What must be paid by the deadline, and what happens to the disputed amount?

Show solution
  1. Undisputed amount: $310,000 − $42,000 = $268,000, payable by the deadline.
  2. The $42,000 can be withheld only under the notice; the payee may refer it to adjudication.
  3. Withholding the whole invoice because of one disputed item would breach the statute and attract interest.

Answer: $268,000 by the deadline; $42,000 resolved separately.

Running a compliant payment system

Prompt payment laws reward companies that run disciplined payment systems and punish those that do not. A general contractor sits in the middle of the chain: it is a payee to the owner and a payer to its subcontractors, so it must meet deadlines in both directions. A practical system has several parts.

  • An invoice calendar: for every contract and subcontract, the invoice date, the notice deadlines and the payment deadlines, generated automatically when an invoice is received or sent.
  • An intake checklist that confirms each invoice received contains what the statute and contract require, and triggers any deficiency notice within the short period allowed.
  • A dispute log that records each withheld amount, the reason, the notice sent and its date, so that undisputed money is paid on time.
  • Matching rules that link owner payments to subcontractor payments, so that money received for a subcontractor's work is passed on within the statutory period.
  • Interest and penalty tracking, so that late payments are identified and costed rather than discovered later in a claim.

Owners need similar systems: a single point of receipt for invoices, a clear chain of approval, and authority for the person who signs non-payment notices. Many disputes under prompt payment statutes arise not from genuine disagreement about money but from invoices lost in an inbox, approvals waiting on someone on vacation, and notices sent a day late.

Worked problem

Costing a late payment habit

A general contractor routinely pays its subcontractors 20 days late on about $1,200,000 a month of subcontract billings. If the statutory or contractual interest rate is 8 % a year, roughly what annual interest exposure does this create, before any penalties or fees?

Show solution
  1. Average amount outstanding late at any time: $1,200,000 × 20 ÷ 30 = $800,000.
  2. Annual interest: $800,000 × 8 % = $64,000.
  3. Some statutes impose much higher penalties, such as 2 % per month, which would raise the exposure to about $192,000.
  4. Fixing the payment process is cheaper than paying the interest and defending the claims.

Answer: About $64,000 a year at 8 %, and far more under penalty rates.

Preparing for a payment dispute

Whatever forum is available, a payment dispute is won on the paper trail: the contract and any amendments, each invoice and the date it was delivered, any notices given and received, the certified amounts, the change orders and their status, and correspondence about the disputed items. Organize these chronologically, with a short summary of the amounts claimed, paid and disputed. A clear, short submission backed by documents persuades adjudicators, mediators and judges far more than a long narrative.

Prompt payment rules also change the commercial conversation. A subcontractor that knows its rights, and calmly cites the statute and its interest provisions, usually gets paid faster than one that simply complains. A general contractor that pays on time builds a reputation that attracts the best subcontractors and the sharpest prices on the next bid.

Common mistakes

  • MistakeWithholding a whole payment because one item is disputed.

    InsteadWithhold only the disputed amount, with written reasons in the statutory time, and pay the rest.

  • MistakeMissing the notice of non-payment deadline.

    InsteadDiarize the deadline for every invoice; a late notice may mean the full amount is payable.

  • MistakeRelying on a pay-if-paid clause without checking the law.

    InsteadCheck whether the statute or courts override it, and whether lien or bond rights remain.

  • MistakeStarting adjudication with poor records.

    InsteadPrepare organized documents; adjudicators decide quickly on the record.

  • MistakeSubmitting incomplete invoices.

    InsteadInclude everything the statute and contract require, so the invoice is proper and the clock starts.

Summary and key terms

  • Prompt payment laws set payment deadlines, require written reasons for withholding and impose interest.
  • Ontario: deficiency notice within 7 days, notice of non-payment within 14 days, owner pays within 28 days, subcontractors within 7 days after.
  • Adjudication gives an interim binding decision within about 30 days, payable within 10 days.
  • Regimes are in force in Ontario, Saskatchewan, Alberta, Manitoba, federal work and Quebec public work; BC, New Brunswick and Nova Scotia are pending.
  • Pay-when-paid clauses deal with timing; pay-if-paid clauses shift non-payment risk.
  • Statutory regimes largely override pay-if-paid clauses where they apply.
  • Withhold only disputed amounts, give timely written reasons and keep good records.
Prompt payment
Statutory rules setting maximum payment periods for construction invoices.
Proper invoice
An invoice containing the information the statute requires, which starts the payment clock.
Non-payment notice
A written statement of an amount being withheld and the reasons.
Adjudication
A fast statutory process giving an interim binding decision on payment disputes.
Interim binding
Binding and payable now, but open to final determination later.
Pay-when-paid
A clause about the timing of payment after the payer is paid.
Pay-if-paid
A clause making upstream payment a condition of the duty to pay.
Condition precedent
An event that must occur before a duty arises.
Privity of contract
The direct contractual relationship between parties.
Interest penalty
Interest payable by law on late construction payments.

Practice problems

Work each problem on paper first, then reveal the answer to check.

  1. Under Ontario's Act, within how many days must the owner pay a proper invoice?

    Show answer

    28 days.

  2. Within how many days after being paid must a contractor pay its subcontractor?

    Show answer

    7 days.

  3. An invoice of $500,000 includes a disputed $60,000. What must be paid?

    Show answer

    $440,000, with timely written reasons for the $60,000.

  4. What is the difference between pay-when-paid and pay-if-paid?

    Show answer

    Pay-when-paid deals with timing; pay-if-paid shifts the risk of non-payment.

  5. How quickly must an adjudicator's determination be paid in Ontario?

    Show answer

    Within 10 days.

  6. Invoice received May 2; owner deadline 28 days. What is the date?

    Show answer

    May 30.

  7. $100,000 paid 30 days late at 6 % a year. Interest?

    Show answer

    About $493.

  8. Is an adjudication determination final?

    Show answer

    No; it is binding on an interim basis.

  9. Why does an incomplete invoice matter?

    Show answer

    It may not be proper, so the payment clock may not start.

  10. What records help in a payment dispute?

    Show answer

    Signed change orders, daily reports, correspondence and the payment history.

Lesson quiz · 5 questions

Score 60% or more to complete this lesson.

Take the quiz