Prompt payments and dispute settlements in construction: What you need to know

A new Quebec regulation aimed at achieving prompt payments and dispute settlements during the execution of work came into effect on September 8, 2025 (the ‘’Regulation’’), marking a major turning point for stakeholders in the construction industry.

Inspired by the pilot project implemented in 2018, this new framework aims to ensure better financial liquidity for contractors and subcontractors by imposing strict payment deadlines and offering an accelerated dispute settlement process to prevent on-site activities from being slowed down or paralyzed.

This Regulation applies to all public construction contracts and subcontracts covered by a call for tenders issued on or after September 8, 2025, and involving an expenditure equal to or greater than $750,000 for work on a building or involving an expenditure equal to or greater than $2.5 million for civil engineering work.

The Regulation introduces two new complementary schemes: 1) a prompt payment scheme and 2) a prompt dispute settlement scheme.

Prompt payment scheme

Requests for payment and changes

The first part of the regulation introduces a prompt payment scheme. This scheme will be initiated by a request for payment being sent by the contractor and/or its subcontractors in accordance with the terms and conditions set out in the Regulation and the requirements contained in the contract documents. Requests for payment sent in this way will be deemed valid if they are not refused within the stipulated period.

The value of a contractual change will now need to be determined by the public body (failing an agreement with the contractor) within a short timeframe, and the amounts receivable will need to be paid within the timeframes stipulated in the Regulation, ensuring greater financial predictability for contractors and subcontractors.

The request for payment may include work resulting from a change in the scope of the work provided for in the contract, or in the conditions under which the contract is performed. If the price of the change has not been agreed upon by the parties or determined by the public body when the request for payment is submitted, the public body may not refuse to pay an amount in respect of the change for this reason alone. The organization must determine the price of the change and may refuse to pay only that part of the amount claimed by the contractor for the change that exceeds the price determined.

Likewise, in its own request for payment, a subcontractor can claim the value of a change that has not yet been determined. The contractor may refuse to pay part of the amount claimed if it disagrees with the value of the work established by the subcontractor, but may not refuse to pay the amount claimed for the change for the sole reason that its value has not been agreed upon with or determined by the public body. To avoid having to immediately pay the value of the change claimed by the subcontractor without the assurance it will be compensated for it, the contractor should therefore logically include in its own request for payment to the public body the price it considers payable for the change concerned. This will oblige the organization to determine the price of the change and notify the contractor within the stipulated timeframe if it intends to refuse all or part of the requested payment.

These new rules will undoubtedly speed up processing times for change requests considerably. Public-sector clients will need to determine the price of a change within one month of receiving a request for payment that includes the value of the change.

To help you visualize the steps and timeframes involved in the prompt payment scheme, a concrete example is available here.

Deductions and withholdings

The Regulation also provides for the possibility of a public body, contractor or subcontractor applying deductions to requests for payment.

As a result, a contractor will be able to deduct from the amount payable to a subcontractor any amount claimed for work that has been the subject of a notice of refusal up the contracting chain, provided the subcontractor is notified within the stipulated timeframe by sending a copy of the notice of refusal to pay on which the deduction is based and a written notice setting out the monetary value of the deduction.

Similarly, when a contract or subcontract includes a penalty clause, the amount of the penalty may be deducted from the payment owed.

The public body is also obliged to deduct from the payments due to the contractor the amounts corresponding to its tax debts.

The Regulation authorizes a maximum contractual withholding of 10% to guarantee performance of the work. This withholding must be provided for in the contract, and the contractor may apply it to its subcontractors.

Other situations may lead to a withholding being applied by the public body, such as to: 1) satisfy reservations related to defects and poor workmanship in the work; 2) repair any damage caused by a contractor or subcontractor; 3) ensure that the claims of subcontractors will be paid; 4) pay the claims of individuals, other than subcontractors, who may invoke a legal hypothec on the work; or 5) compensate for the contractor’s failure to transmit the various documents required for the release of the final payment. With the exception of the latter case, the contractor may provide sufficient security to guarantee the performance of its obligations to avoid the application of a withholding (e.g., where applicable, a bond, deposit or bank guarantee).

The Regulation also govern the acceptance of the work. In particular, when a contractor considers that work under a public contract has been completed and is ready to be used for its intended purpose and that the public body is delaying acceptance, it may send the public body a written notice demanding that it accept the work. The public body has 60 days to accept or refuse, giving reasons for its decision. If it fails to respond within that time, the work will be deemed to have been accepted and the sums withheld to guarantee proper performance of the work will become due and payable as of the subsequent request for payment, subject to reservations made as to apparent defects or poor workmanship.

Lastly, it should be noted that the Regulation provides that a public body is not required to pay a sum it has withheld “if the contractor fails to perform the obligation resulting in the withholding of payment within a reasonable time following the date on which the contractor was informed of the withholding.” The public body may use the sum to perform the contractor’s obligation itself or to have it performed by a third person.

Exclusions from the scheme

The main exclusion concerns public construction contracts entered into in emergency situations. A monetary claim to compensate for a loss of profit, productivity or a business opportunity that a contractor considers it has suffered because of a change relating to the scope of the work specified in a public contract or public subcontract, or to the conditions for its performance is also excluded from the scope of the Regulation.

Prompt dispute settlement scheme

The second part of the Regulation establishes a scheme for the prompt settlement of disputes. This process is triggered by transmitting a request for intervention. For a request to be admissible, the parties must have previously attempted to settle their dispute amicably. They may then submit such a request to an accredited third-person decision-maker within the notification timeframes set out in the Regulation.

A request for intervention may concern the validity of a request for payment, the compliance of a refusal to pay, a deduction or withholding, the existence or value of a change relating to the scope of the work or the conditions of its performance, the payability of a sum of money, or any other question concerning the application or interpretation of the contract or the normative framework applicable.

In all cases, recourse to a third-person decision-maker is not possible if the dispute is already the subject of judicial or arbitral proceedings.

The Regulation sets out strict procedures for notifying and responding to a request for intervention, to ensure that all those involved in the contracting chain are informed and involved promptly. For example, when a request for intervention arises from a deduction applied by a contractor to a subcontractor in accordance with the prompt payment scheme, the failure of the contractor to notify the public body of the request for intervention within the prescribed time will entail an obligation on the part of the public body to pay the subcontractor the amount equivalent to the deduction, subject to its right to claim it back from the public body at a later date.

Procedure for the intervention

The name of the third-person decision-maker is chosen by mutual agreement, or by random draw in the event of a disagreement. The fees of the third-person decision-maker are allocated equally between the parties to the dispute.

Once the third-party decision-maker has been designated, the parties must submit an outline of their claims. The process is intended to be expeditious and in compliance with the principle of proportionality. Apart from a few exceptions, the proceedings are oral, and witness statements are made in writing. It is not permissible for a party to be represented by counsel in this process.

The decision must be rendered within 50 days of the designation of the third-person decision-maker. The decision is confidential and ends the intervention. A party required to pay a sum of money as the result of a decision has 20 days from the date on which the decision was rendered to comply.

A diagram showing the stages and timeframes involved in the intervention process, depending on the circumstances, is available here.

As this process is open to all parties in the contracting chain, a party who fails to meet the deadline for responding to a request to intervene from its co-contractor risks having a decision issued by the third-person decision-maker concerning it.

In addition, a party who is deemed to have withdrawn its request to intervene, for example because it failed to meet the deadline, will be barred from later resubmitting such a request to the third-person decision-maker.

The dispute settlement process before a third-person decision-maker in no way prevents the parties from resorting to the courts of common law or arbitration. Moreover, a decision rendered by the third-person decision-maker, while ending the intervention process, does not necessarily end the dispute between the parties, as the Regulation provides that such a 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.

The decision rendered by the third-person decision-maker is binding on the parties until such time, if any, as a court judgment or arbitration award is rendered on the same subject. In the meantime, the parties to the dispute must comply with the decision rendered. Failing this, enforcement of the decision may be sought. The payment of a sum of money in accordance with a decision rendered by the third-person decision-maker does not imply any recognition of debt or waiver of the right to claim full or partial repayment in the event of legal action or arbitration.

This new process must be mastered by all those involved in the contracting chain and closely monitored by the project teams.

Conclusion

The application of the Regulation will be phased in gradually: first for the largest contracts starting in September 2025, then for all public contracts by 2027. This new framework will have a major impact on managing public contracts in the construction industry. All players (clients, contractors, subcontractors and professionals mandated by clients) will need to adapt their practices quickly to incorporate the new obligations related to requests for payments and payments, as well as those concerning the prompt dispute settlement scheme. The project teams should be given training immediately to ensure compliance with the new rules, minimize risks and take full advantage of the benefits offered by this new framework. A proactive approach will not only protect everyone’s interests but also ensure greater financial predictability and smoother execution for public works projects.