28 Days to Pay: CBRE Project Management Helps Clients Navigate Prompt Payment Legislation

Contractors want to get paid just like everyone else – on time. New legislation is designed to make sure that will happen, and your construction project will need to adapt. CBRE Project Management is here to help.

The federal government has introduced prompt payment legislation for federally funded projects to address long-standing construction industry concerns about the timeliness of payments and protection of construction jobs. Four provinces have adopted prompt payment legislation and adjudication regimes of their own: Ontario, Saskatchewan, Alberta and Nova Scotia. And the other provinces are considering following suit.

The Prompt Payment for Construction Work Act gives the federal government 28 days to pay after a contractor submits an invoice. The contractor will then have seven days to pay its subcontractors, subcontractors will have another seven days to pay their sub-subcontractors, and on it goes down the contracting payment chain, thus getting funds into the hands of the project trades and vendors as fast as possible.

While the federal government stressed its “strong record of promptly paying its contractors” – with 90% of invoices paid within 30 days – “delays have been reported down the payment chain.” Prompt payment legislation ensures each party in the construction chain receives timely payment for work provided for a project.

“It is the predictable and timely payment of contractors and subcontractors (and sub-subcontractors) that allows important federal infrastructure projects, such as work on buildings and bridges, to be completed,” the government said.

Don’t Panic, Choose CBRE’s Principal Delivery Model

CBRE’s Ron Armstrong, who leads the company’s Project Management division in Canada, has been seeing clients struggle to figure out how they’ll pay vendors within 28 days to be compliant with the legislation. “Failure to do so means the general contractor can file a claim and trigger a complicated and time-consuming adjudication process,” he says.

Clients looking for a less stressful solution for delivering projects and paying contractors on time are finding much to like about CBRE’s Principal Delivery Model. Introduced by CBRE four years ago, the Principal model transfers certain contractual risks of project delivery onto CBRE, so clients don’t need to be concerned about the cash-flow-sapping burden of complying with prompt payment legislation.

“There are many reasons why our clients choose to go with Principal,” says Armstrong. “But a primary reason they choose Principal delivery is because of the prompt payment legislation,” which Ontario was the first to adopt in 2019. “They like the idea of offloading the administrative risks onto CBRE. We’re already managing the stress of architect and general contractor engagements, so let us take payment timing off your plate, as well.”

Strategic Advantage

CBRE’s Calgary-based John Millington manages the operations of CBRE’s Principal Projects Group nationally. He says many of his clients are global entities with satellite offices in Canadian markets and a mothership elsewhere in the world. This can make it challenging to stay on top of local laws and regulations, not to mention accounts payable.

“When we talk about prompt payment, most of our clients don’t know what it is, and for various reasons there’s no way they can consistently comply with it,” says Millington. “They often have much longer payment terms to account for their internal approval processes, as well as limited resources. So that allows our Principal model to bridge the gap, keep projects moving and ensure our clients are compliant with the law.”

Armstrong notes that CBRE deals with many Fortune 500 firms that typically have 60- to 120-day payment terms. “So the prompt payment legislation suddenly puts a ton of stress on these organizations.”

Paying an invoice within 28 days “is simply not how most of these companies have their accounts payable workstreams set up,” Armstrong says. “And if you think about most organizations that CBRE works with, it’s not their core business to run real estate projects. They’re often ill-equipped to track and manage capital expenditure on these construction projects in a way that suits the project’s cashflow needs.”

“The easiest route for many is to contract it directly to CBRE.”

Problem Solving

Principal is about solving problems that CBRE’s project management clients may not realize exist as they’re working through the closing of a deal.

“They have to prequalify vendors, enter into the most suitable forms of contract, hire and pay general contractors, and pay for furniture and services,” says Armstrong. “And without Principal they’re left to sort through this all on their own.”

In a worst-case scenario, he adds, a group may not realize that prompt payment legislation even exists until they’re in the middle of a project. “With some of these projects there are hundreds of invoices that need to be paid, and general contractors can often have seven-figure invoices depending on the stage of the project. Whether it’s $10 million or $2 million, you have 28 days to get these invoices paid.”

Client Beware

Prompt payment legislation means clients can no longer dictate payment terms. “And because it is provincial and federal legislation, they cannot contract out of it,” says Armstrong. “So as a client if you have a cumbersome procurement and payment process, which some clients do depending on the technology software solution they use, it can be extremely problematic.”

The last thing a client wants is to end up going through the adjudication process over a late payment claim in the middle of a construction process. “It can be costly and time-consuming for everyone involved and highly demotivating for the sub-trades,” Armstrong says. “But it’s the contractor’s legitimate right to go to a hearing if their invoice is delayed or ignored. The legislation has flipped the payment model and made it more equitable for the general contractor than it was previously.”

Before, a lot of companies would hold on to cash and have long payment terms to manage their own cash flow, Armstrong adds. “The construction industry would essentially be floating that project for the client. Prompt payment legislation levels the playing field. It’s not punitive – it’s fair to the workers delivering the project.”

Construction projects are already hard enough. Use CBRE’s Principal Delivery Model to keep your project on track, on budget – and onside with new legislation.