The document discusses performance bonds and labor and materials payment bonds. It provides information on what triggers a bond claim, the surety's process for investigating defaults and completing contracts, and how project owners and claimants can work with the surety. Examples of bond claims on infrastructure projects are also provided.
The document discusses performance bonds and labor and materials payment bonds. It provides information on what triggers a bond claim, the surety's process for investigating defaults and completing contracts, and how project owners and claimants can work with the surety. Examples of bond claims on infrastructure projects are also provided.
The document discusses performance bonds and labor and materials payment bonds. It provides information on what triggers a bond claim, the surety's process for investigating defaults and completing contracts, and how project owners and claimants can work with the surety. Examples of bond claims on infrastructure projects are also provided.
The document discusses performance bonds and labor and materials payment bonds. It provides information on what triggers a bond claim, the surety's process for investigating defaults and completing contracts, and how project owners and claimants can work with the surety. Examples of bond claims on infrastructure projects are also provided.
I – Performance Bonds Surviving a Contractor Default Performance Bonds Guarantees Contractor will perform contract in accordance with its terms & conditions. Contractor must be in default and the default must be declared Owner must perform their obligations 4 options available to Surety: Remedy the default Complete the Contract Arrange for new contractor to complete Tender Payment Two years to file suit Before a Default is Declared Surety has extensive experience with contracts and solving construction problems. Surety has intimate knowledge of contractor and its operation Can provide informal assistance to solve problems that can lead to a default Will convene meeting or teleconference among the parties to address problems. Assist in formalizing solutions. Claims When A Contractor Defaults: Surety will promptly acknowledge notice of default and being to gather information. Surety will begin an investigation as soon as possible. Surety will conclude the investigation as soon as possible. If requested by owner, surety will provide periodic written updates on investigation status and best estimates as to completion date. Claims During and After the Investigation: Surety will cooperate with the owner to protect work from damage or deterioration. Surety will work with the owner to: Identify and implement a solution. Minimize delays, keep the job going and protect the rights of all parties. Pay valid labour and material payment bond claims as promptly as possible to ensure continuity of subs and suppliers. How can the Project Owner Help Comply with bond & contract terms! (e.g. proper notifications, payments and certifications)
Communicate: keep surety appraised of
problems and provide default notice promptly.
Cooperate: Ensure surety has access to
knowledgeable staff and relevant documents.
Avoid the common pitfalls
Surety Bonds: Does & Doesn’t’s A surety bond will provide: Professional prequalification to weed out unqualified contractors. True performance security; i.e. provides owners with a completed project in the event of default. Payment protection to subs and suppliers. A surety bond will not provide: Cash-on-demand. There MUST be a default. Dispute resolution. A “magic lamp”. Protection beyond the scope of the contract. Surety Bonds: Does & Doesn’t’s Also…. Owner must have fulfilled its contract obligations L & M Claimants must comply with the terms of the bond and be prepared to document claim Problems or questions? Contact the Surety Association of Canada Phone: 905-677-1353 Fax: 905-677-3345 email: sness@surety-canada.com Default & Other Considerations What makes a default? Default or Dispute? Prequalification – Macro or Micro? Keep expectations realistic. Delays Inevitable Re-engage defaulting contractor: effective claim management or recipe for disaster? Liquidated Damages II – Pitfalls to Avoid When Declaring Default … A clear and unequivocal declaration of default State reasons for default Call for the Surety to act under the bond. Hold up your end of the Bargain
The Bond guarantees the contract.
If you default; contract is breached No contract; no bond Material Change When it’s no longer the same contract… More than just price Err on the side of caution Over Payment/Certification
Accelerated payment to assist distressed
contractors Depletes pool of unearned funds to surety’s detriment Commercial Responsibility Duty in law to act in a commercially responsible manner. Liable for damages or losses caused by our actions (or inactions) Unilateral action Replacement contractor III – For Example… Claim Example 1
Highway Development Project
Provincial Government Declares Default on Highway Project Case Background: The Principal, a road building company, was working on a provincial transportation project when it experienced financial distress and could not complete the project, valued at $5.8MM. The Obligee, a Provincial Government transportation department held surety security for 50% of the project amount to mitigate both contract performance risk and labour & materials payment risk. Claims Example 1 Highway Development Project Surety’s Action: The Surety Company advised the Obligee it would start preparing the tender package to complete the work. The Obligee expressed interest to choose its own completion contractor. The Surety Company and the Obligee settled for financial payment; where the Surety paid the Obligee the anticipated completion costs. Claims Example 1 Highway Development Project At the same time, the Surety Company paid out multiple subcontractor and supplier claims under the labour and material payments bond. Total amount paid out by the surety on this project were $3.3MM. Claims Example 1 Highway Development Project “[this] is certainly a good example of the value of having a performance bond [and labour & materials payment bond] and we were pleased that the bonding company offered flexibility in coming to a solution that met our needs. The negotiated settlement provided advantages to us, as the Owner, in that it gave us control of the work, which enabled the completion to be expedited in an efficient manner…” Owner Testimonial Claim Example 2
Underground Contractor Defaults on 13
Municipal Projects Claim Example 2 Case Background: The Principal, a sewer, watermain, curb/gutter, and roadwork contractor with approximately $10 million annual sales was forced into receivership when bank called its loan. A regional municipality was left with 12 unfinished contracts. Another municipal owner was impacted with 1 uncompleted contract as well. Total value of the uncompleted work underway was $7.4 million. Project contracts were anywhere from $500 thousand to $3 million range. The surety: Claim Example 2 worked with the owners to ascertain the status of each contract and identified the remaining work to be completed. obtained quotes for completion of outstanding work, presented these to Obligees and arranged for completion contracts to be executed. reviewed claims from unpaid 48 trades and suppliers. All claims settled within 72 hours. total surety payout in excess of $6.7 million. All 13 Contracts completed with no loss to Obligee. IV – Surety Bonds Making a Claim Under a Payment Bond Labour &Material Payment Bonds Guarantee that the contractor will pay all direct subcontractors, suppliers for materials and services provided to bonded project. Obligee is trustee on behalf of the claimants Claimant must have a direct contract with the Principal Claimants may only claim for goods and services supplied to the bonded job Claimant can claim directly against the surety (don’t need to go through owner). Labour &Material Payment Bonds Claim must be filed within 120 days of the last day worked or the date material shipped Existence and quantum of claim must be fully documented Bond works in tandem with protection under the CLA Does NOT require General Contractor to be in default ONLY form of security that is exclusively for the benefit of trades and suppliers One year to file suit Claiming Under a Payment Bond Protect Your Rights. Read the Bond form and comply with its terms: Notice Periods Suit Period Materials Supplied to Bonded Job Direct Contract with the Bonded Contractor Provide Sufficient Documentation. Claiming Under a Payment Bond What you Need: A complete copy of the contract with the Principal. Copies of all change orders to the contract. Copies of all invoices submitted to the Principal. Copies of all statements of accounts rendered to the Principal. Summary of payments made including date and amount. A Statutory Declaration with respect to your own subcontractors. Claiming Under a Payment Bond What you Need (cont.): Evidence of the last date upon which labour and/or material was supplied to the project (i.e. delivery slips, time sheets, etc...) Evidence and documentation supporting other amounts claimed which have not been agreed to or authorized in writing. A copy of the Claim for Lien, if any. A workers’ Compensation Board clearance letter (current). SURETY ONLINE LEARNING CENTRE The Surety Online Learning Centre accessible from SAC website; www.suretycanada.com. Five learning modules that introduce the basics of surety bonds and the suretyship process Learn at your own pace. Ideal for review or for colleagues who can’t attend a “live” information session. It’s FREE Contact Us Phone: 905-677-1353