Timing and Responsiveness around Claims:
Much of the extra content consists of template schedules, or forms which set out the standard responses and acknowledgements under the bond. However, the bonds also include enhancements and additions that introduce more clarity to the claim process and set standards for the timing and content of a Surety’s response to a Notice of Claim.
Regarding the timing, as soon as a Notice is received; either from an Owner under a performance bond or a Claimant (Subcontractor or Supplier) under a labour and material payment bond, the clock begins to tick. In fact, several clocks begin to tick at once. As an example, consider the time limitations imposed upon a Surety when it receives a Notice of Claim from a Subcontractor under a payment bond.
- Immediately upon receipt of the Notice, a Surety has three business days in which to acknowledge receipt to the Claimant and request the information required validate the claim.
- At the same time, it has 35 business days (or less) to communicate its position to the Claimant; setting out what portion of the claim, if any, is being disputed.
- Once the Surety delivers its position to the Claimant, it has 10 business days to pay any amounts that aren’t in dispute.
Similar deadlines are found in the performance bond as well
But it doesn’t stop there. The new surety protocols require claim handling to be responsive as well as timely and the new regulations raise the bar by establishing more stringent response standards. The performance bond is quite specific in setting out the options that are available to a Surety in communicating its position to an Owner in response to a Notice. Under Paragraph 3.3. a Surety may either:
a. Accept Liability and propose a method for completing the project; or,
b. Deny liability and communicate the specific reasons for that denial; or,
c. Inform the Owner that they cannot determine whether or not liability exists and provide them with the specifics as to what the issues are and how they can be addressed.
Similarly, when communicating its position to a Claimant under a payment bond, a Surety is required to set out the amount of the Claim that is being disputed and provide the reasons for its challenge. It must then pay any undisputed amount within 10 business days of this response.
The common thread here is the imposed responsiveness which calls for sureties to communicate their positions clearly and resolve claims in a timely manner. When your surety receives a Notice of claim, it must take action, or explain in detail why it will not; all within a very tight timeline.
But don’t forget that the clock is ticking for the bonded Contractor as well. While the onus appears to be on the Surety to take the required action, general contractors need to be mindful of the impact that these new augmented standards will have on their organization; both on their administrative responsibilities and, ultimately, their own liability under the bond. It falls upon the Contractor to keep the Surety informed about the circumstances surrounding the claim and any defenses or mitigating circumstances that may be in play.