Overview:

The Contracts Committee is presently working on developing proposals for changes in the Alberta Builders’ Lien Act. There are two specific areas in which the Committee is seeking more information – progressive release of holdbacks, and the addition of the definition of “oil or gas well” and “oil or gas well site” to the Act.

Progressive Release of Holdbacks:

Although the current Builders' Lien Act contains some provisions for progressive release of holdbacks to subcontractors, the Builders' Lien Act Subcommittee is investigating the possibility of a progressive release of holdback so that holdbacks can be released on an annual basis and allow for funds to flow into the system without detracting from the security provided to participants in the construction of the project.
A progressive release of holdback would permit earlier payment of holdback monies and the committee believes this would be beneficial to all construction industry participants for the following reasons: 

• where cash flow is put on hold through maintaining large holdbacks under the Builders' Lien Act, such cash flow can be safely released on an earlier basis;
• in boom times there is more risk in the system because of under-capitalised companies and earlier release of holdback may help under-capitalised companies avoid failure, which is a risk for both the owner and the members of the contracting community; and
• early release of holdback reduces the cost of money held back.

Addition of the Definition of “Oil or Gas Well” and “Oil or Gas Well Site” to the Act:

The terms "oil or gas well" and "oil or gas well site" are used in the Builders' Lien Act, but are not defined in that Act. The period for filing a lien and, therefore, the release of the holdback, in relation to improvements to an "oil or gas well" and "oil or gas well site" is 90 days. This differs than the standard 45 day period for all other improvements. The difficulty that has arisen is that, without a definition of the terms "oil or gas well" and "oil or gas well site", there is ambiguity as to what types of improvement these provisions apply to and, in particular, whether or not they apply to SAGD (steam assisted gravity drainage) operations and other heavy oil extraction systems and the extent of those operations. Currently, many operators in the SAGD industry apply the 90 day release of holdback to all of the construction on their sites, including all above grade facilities as a result of the ambiguity within the Act.

The Alberta Builders' Lien Act was amended in 2001 as a result of lobbying by the Canadian Association of Oilwell Drilling Contractors (CAODC), the Petroleum Services Association of Canada (PSAC) (together with the Canadian Association of Petroleum Producers (CAPP) and Small Explorers and Producers Association of Canada (SEPAC)) because of the concern that drilling operators do not typically get paid within 45 days and lien rights expire by the time drillers could reasonably expect payment. For this reason, the lien period for work on an "oil or gas well" or an "oil or gas well site" was extended to 90 days. It has been proposed by the Contracts Committee that these terms be defined in the Act so that it is clear which projects these terms apply to.

Contact:

For more information on this or any of the COAA Contracts Committee’s other activities, please contact coaa.admin@coaa.ab.ca.