SAC Integrated Project Delivery Performance Bond

The Surety Association of Canada is pleased to introduce its specialty performance bond for use with Integrated Project Delivery (IPD) projects.

Unlike the traditional 2-party contract models (e.g., design-bid-build or design-build, construction management), in which the various project participants operate in self-contained silos, the IPD model seeks to create a team approach where all parties enter into a single contract and where the decision making, the risks and the profits are shared. This should minimize or eliminate the adversarial dynamic that can develop when each party pursues its own interests; and, hopefully, it will incentivize more cooperative and collaborative relationships.

Like any non-traditional project delivery approach, IPD presents a new set of challenges to the construction industry as it works to create a sustainable and workable model that puts the theory into practice. In January 2019, the Canadian Construction Documents Committee (CCDC) took a huge step toward bringing some consistency into the IPD space with the publication of CCDC 30 – Integrated Project Delivery Contract. This template document provides a broad, workable framework to accommodate the objectives of the IPD approach while providing the flexibility to allow participants to manage the project in accordance with its specific needs.

Arguably one of the most vexing challenges in the IPD world is the identification and mitigation of risk. The unique structure and relationship dynamics of IPD contracts create vastly different and unfamiliar risk matrices that defy traditional risk management solutions.

From a surety perspective, nowhere is this problem more evident than in the mitigation of risk of project contractor (or other party) failure. Despite the mitigating effect of the IPD “team approach”, no contractual arrangement, no matter how collaborative is risk free. As in the more traditional contracting models, the risk of a major contractor insolvency or failure, if not adequately managed can have catastrophic consequences to the project and all of its participants.

So how to manage that risk? Clearly IPD Contracts defy traditional solutions and the standard performance bonds are simply unworkable. In developing the new bond form, SAC went back to the drawing board and undertook a comprehensive review of the complex inter-relationships between parties to IPD contracts including the payment chains and reporting dynamics. From there, the drafting team identified the points of vulnerability to that risk of failure of the project contractor and/or one of the other construction participants to the IPD team.

While the new bond template is intended for use with the CCDC-30 standard, it also seeks to be flexible enough for use with modified versions of this document and for other variations on the IPD theme. A few highlights and observations:

• The SAC IPD Performance Bond does not and cannot guarantee the performance of the aggregate obligations under the IPD Contract. There are simply so many parties that could be collectively and individually responsible for such obligations as to make any attempt to provide consolidated performance security unwieldy or even impossible.
  
  The new bond arrangement contemplates that each construction participant in the project will post its own bond that guarantees the performance of its obligations under the IPD Contract. Thus, there may be several bonds on any given project, posted by each of the major construction parties.
  
  
• As the source of project funding and ultimate bearer of the financial risk of a cataclysmic event, the Owner is the logical choice as obligee/beneficiary under the bond. The SAC IPD Performance Bond identifies the Owner as the sole obligee under the instrument.
  
  
• The SAC IPD Performance Bond will protect the Owner from any increase in costs of completing the Principal’s Work under the IPD Contract following that Principal’s default and termination under the terms of the IPD Contract. This will include any additional direct costs (shortfall) to complete the Principal’s work along with any HST/GST and Owner’s expenses (as defined in the bond).
  
  
• A claim on the bond can be advanced when the Principal is in default of its obligation and its participation in the project has been terminated by the other members of the IPD team.

To access the SAC IPD Performance Bond, CLICK HERE.

To access the SAC IPD Performance Bond User’s Guide, CLICK HERE.