Regulation respecting prompt payments and the prompt settlement of disputes: A herald of change on public-sector worksites in Québec

On April 23, 2025, the Québec government published the new draft Regulation respecting prompt payments and the prompt settlement of disputes with regard to construction work¹ (the Draft Regulation) in the Gazette officielle du Québec. This follows the Pilot project to facilitate payment to enterprises that are parties to public construction work contracts and related public subcontracts² (the Pilot Project), conducted between Aug. 2, 2018, and Aug. 1, 2021.

This is a second draft of an initial regulation which, when it was published on July 3, 2024, sparked feedback from various Québec construction industry stakeholders.

The Draft Regulation supplements An Act mainly to promote Québec-sourced and responsible procurement by public bodies, to reinforce the integrity regime of enterprises and to increase the powers of the Autorité des marchés publics³ by introducing a scheme for prompt payment and the prompt settlement of disputes for public contracts for construction subject to the Act respecting contracting by public bodies⁴ (ARCPB).

Prompt payment scheme

The Draft Regulation introduces a mandatory payment calendar for amounts claimed by parties to public construction work contracts subject to the ARCPB. This calendar was established to address the problem of late payments. Here is a summary:

The contents of the request (s. 5): Requests for payment must be made in writing, dated, and signed, and contain all required information (name and address of contractor, number of the public contract, a description of the work, the total amount claimed, etc.).

Presumption of validity (s. 7): To ensure that substance prevails over form, a request for payment is presumed to be valid (unless sent on a date that renders it invalid) if the debtor fails to raise the question of its invalidity before the deadline for submitting a notice of refusal to pay.

Exclusions from the prompt payment scheme (ss. 31 and 32):

The following contracts and requests for payment are excluded from the scheme:

• Public contracts entered into in an emergency because of a threat to human safety or property;
• Public contracts of the Ministère des Transports or the Société québécoise des infrastructures which, when they are entered into, provide both:
  • that the work must be completed over a continuous period of 3 months or less;
  • that the amounts owed by the Minister or the Société under the contract will be paid in a single instalment;
• Requests for payment to compensate for loss of profit, productivity or a business opportunity that a contractor attributes to a change relating to the scope of the work specified in a public contract or public subcontract or to the conditions for its performance.

Prompt dispute settlement scheme

The Draft Regulation also sets out a process for the prompt settlement of disputes applicable to all disputes that cannot be settled amicably,⁵ except for those expressly excluded under section 32. This process involves the intervention of a third-person decider and can be summarized as follows:

Notifying a notice of intervention (s. 34): A party wishing to have recourse to a third-person decider must notify a notice of intervention to the other contracting party within at most 90 days of the following:

• For the main public contract: the date on which the public body accepted the work without reservations or, if accepted with reservations, the date on which it declared it was satisfied with the repairs or corrections made;
• For a public subcontract: the end date for the work agreed on by the parties.

Exclusions from the prompt dispute resolution scheme (s. 35):

The following disputes are also excluded from the scheme:

• Disputes that have already been settled by a third-person decider following an intervention;
• Disputes for which a party has previously submitted a request for intervention concerning the same dispute and:
  • voluntarily withdrew after the designation of a third-person decider;
  • is deemed to have withdrawn;
  • a third-person decider has already ruled, in a decision, that the party was not entitled to exercise the right to have recourse to a third-person decider for the dispute concerned or that it abused that right;
• Disputes that have already been the subject of judicial or arbitral proceedings between the same parties.

The Draft Regulation no longer sets a monetary cap on disputes eligible for prompt settlement by a third-person decider. In the previous version of the Draft Regulation published on July 3, 2024, the prompt settlement scheme only applied to disputes with a maximum value of $500,000.

The contents of the request (s. 37): The request for intervention must include the nature of the dispute, its monetary value, the grounds invoked, the conclusions sought, and the names of three proposed third-person deciders.

A request for intervention may concern only one disputed matter. However, if an applicant considers that several disputes arise from events that are connected and contemporaneous within the meaning of section 51, paragraph 2, it may submit a request to consolidate the disputes into one.

Other contracting party’s answer (s. 40): The other contracting party has five days to respond and send a notice indicating:

• The name of the third-person decider chosen from among those proposed, or the fact that none were chosen along with the names of three other third-person deciders;
• Its acceptance or rejection of the consolidation of disputes proposed by the applicant;
• If applicable, its own intention to submit a request to consolidate several disputes.

Response to the request to consolidate disputes (s. 41): The applicant has five days to respond in writing to the other party’s request to consolidate the disputes, either accepting or rejecting the consolidation.

Designation of the third-person decider (ss. 43 and 44): If the parties are unable to agree on the choice of a third-person decider, they proceed to a random draw. Once designated, the third-person decider will be sent the request for intervention and the response to the request.

Third-person decider’s decision on consolidating disputes (s. 51): The third-person decider must rule on any request for the consolidation of disputes within five days of being designated.

Detailed outlines from the parties (s. 52):

• The party that requested the intervention has five days after the designation of the third-person decider to send the third-person decider and the other party a detailed outline of its claims and supporting documents;
• The other party then has 15 days to send a detailed response to the applicant’s outline, along with supporting documents, with a copy sent to the third-person decider.

Procedure for the intervention (ss. 50 and 54):

• The third-person decider conducts the intervention using the procedure he or she determines while ensuring the process is equitable and complies with the principle of proportionality;
• Though the parties may consult a lawyer, the lawyer may not make representations on their behalf.

Decision (s. 62): The third-person decider must render a reasoned decision in writing within 50 days of being designated and notify it to the parties. The third-person decider may extend the deadline by up to 15 days as needed, provided he or she informs the parties before the expiry of the initial deadline, or by a longer period if the parties consent.

Payment (s. 66): A party required to pay a sum of money has 20 days to comply from the date the decision is notified.

Fees of the third-person decider (s. 70): The fees of the third-person decider and the costs incurred for the conduct of an intervention are allocated equally between the parties, unless the third-person decider determines otherwise because a party was abusive or failed to comply with the deadlines.

Other key takeaways

Deductions and withholdings (ss. 16 and 17):

• A contractor may deduct, from a payment owed to one of its subcontractors, an amount equivalent to a sum claimed for work that was refused by another debtor in the contracting chain, provided the contractor has first sent a copy of the notice of refusal to pay;
• A public body or contractor may deduct from a payment the amount of a penalty stipulated in a contract.

Withholding at the initiative of a public body (ss. 20, 22, 23, 25, 26, and 28):

A public body may withhold money owed to a contractor in the following circumstances:

• Up to 10 per cent of the sum owed can be withheld to ensure a public contract is carried out if the right to withhold payment is specified in the contract. A contractor subject to a withholding can, in turn, withhold a partial sum owed to its sub-contractor provided the right to withhold payment has been agreed upon in writing by the parties;
• A sufficient amount may be withheld to cover the reservations made as to the apparent defects or apparent poor workmanship in the work;
• A sufficient amount may be withheld to repair any damage caused by the contractor or by a subcontractor;
• A sufficient amount may be withheld to ensure that the claims of subcontractors are paid by the contractor, or to allow a public body to pay the claims itself, regardless of whether the subcontractor can invoke a legal hypothec on the immovable property;
• A sufficient amount may be withheld to pay the claims of persons other than the contractor’s subcontractors who can invoke a legal hypothec on the immovable;
• The entire amount payable to a contractor may be withheld if the contractor has not provided all the required closeout documents.

Some of these withholdings can be avoided if the contractor provides the public body with sufficient security to mitigate the risks these measures target. Though the Draft Regulation does not expressly reference surety bonds for construction, they may apply here.

Withholding by a contractor (s. 29):

• A contractor that is a party to a public subcontract may withhold all or part of a sum payable to a creditor, provided that this right is specified in a written agreement between the parties and that the withholding does not target the same purpose as a withholding of payment by the public body.

Confidentiality (ss. 67 and 69):

• The parties to the dispute and the third-person decider must ensure the details of the intervention remain confidential, including the decision rendered by the third-person decider;
• This decision may be filed in later proceedings before a court of common law or an arbitrator, if the intervention and the proceedings concern the same disputed matter and involve the same parties.

Scope of the third-person decider’s decision:

• Section 21.48.27 of the ARCPB⁶ provides that the decision rendered by a third-person decider is binding on the parties until, as applicable, a judgment by a court of general jurisdiction is made or an arbitration award is rendered on the same subject matter;
• The parties must comply with the decision rendered on the terms and conditions indicated in the decision;
• The party required to pay a sum of money must do so, or the creditor may force its execution by filing a copy of the decision with the office of the competent court in accordance with section 21.48.28 of the ARCPB.

Annulment of a decision rendered by a third-person decider:

• On October 8, 2024, the National Assembly adopted Bill 62, An Act mainly to diversify the acquisition strategies of public bodies and increase their agility in carrying out infrastructure projects (Bill 62);⁷
• Bill 62 introduces a new procedure to apply to the court for the annulment of a decision rendered by a third-person decider in a prompt dispute settlement;
• The proposed procedure is similar to an arbitration appeal or an application for judicial review;
• Thus, the new section 21.48.28.1 of the ARCPB provides that a party may apply to the court for the annulment of a decision rendered by a third-person decider for any of the following reasons:
  1. one of the parties did not have the capacity to participate in the dispute settlement process before the third-person decider;
  2. the dispute arises from a public contract or subcontract that is not valid;
  3. the decision pertains to a dispute that could not be submitted to a third-person decider or contains a conclusion entirely unrelated to the subject matter of the dispute that was pending before the third-person decider;
  4. the dispute settlement process was led by a person who was not certified to act as a third-person decider;
  5. the rules applicable to the selection of the third-person decider were not complied with;
  6. the rules applicable to the dispute settlement process before the third-person decider were not complied with and that non-compliance compromised the fairness of the process.
• An application for annulment must be presented before the Court of Québec or the Superior Court, according to their respective jurisdictions, within 30 days after receipt of the decision;
• An application for annulment does not postpone the execution of the decision, unless the court orders otherwise.
• If the court annuls the decision in whole or in part, it may order the reimbursement of all or part of the amount paid in execution of the annulled decision.

Conclusion

In accordance with section 21.48.20 of the ARCPB, the new scheme for prompt payments and the prompt settlement of disputes will be mandatory for public contracts. Even if the parties agree to depart from the scheme, such an agreement will be declared null.

The Draft Regulation thus marks a significant shift in the construction industry. It builds on the lessons learned during the Pilot Project, improving public bodies’ flow of capital to contractors, subcontractors, and service providers executing the public contract. Disputes arising on the worksite will be quicker to resolve now that a third-person decider can be called in. Not all disputes can be settled under this scheme, however, given the exclusions that apply to loss of profits and productivity.

The true impact of this major regulatory change has yet to be measured in the context of the financial and legal realities of public contracts for construction, but there is no doubt that it marks a major turning point in how claims and disputes are settled in the public construction sector.

The Draft Regulation will come into force 15 days after its final version is published.

Contact us

If you have any questions about the Regulation respecting prompt payments and the prompt settlement of disputes with regard to construction work, reach out to Montréal-based members of BLG’s Construction Group.