A few Tips for Public Owners:
1. Read the Bond and Understand its Terms.
In order to derive the maximum benefit from bond, a public owner will need to fully understand its rights and obligations under instrument. The new claim processes are interactive and require an Owner to meet certain requirements. For example, when undertaking the Necessary Interim Work to address public safety issues, the Owner is required to provide written notice to the Surety "…within three (3) Business Days of the commencement of such Necessary Interim Work". (Paragraph 4.1).
Ensure that front line staff are brought up to speed regarding the new procedures and requirements. Most importantly, we urge Owners to consult with counsel and other knowledgeable people within their organizations for advice as to the meaning of the various clauses and provisions.
2. Work with the Surety.
A Contractor default is the doomsday scenario for everyone involved in any construction project. Surety, Contractor and Owner will typically find themselves embroiled in a situation which is fraught with stress and intense pressure; hardly conducive to collaborative problem solving.
Despite these challenging circumstances however, cooperation between the parties is crucial to the successful and timely resolution of the difficulties arising from the default. A few suggestions:
- Ensure that your initial Notice of claim includes all pertinent data as set out in Schedule A to the bond. Incomplete or incorrect notices can result in unnecessary and frustrating delays. Although it’s not required under the bond, it’s probably good practice to provide a copy to the Contractor.
- Once the Surety has acknowledged receipt of the Notice, Paragraph 3.2 of the bond requires the owner to "…promptly and in accordance with terms of the Contract, provide the Surety with the requested Information and access to personnel and the work site(s) within its possession or control". The importance of providing this information and access as expeditiously and in as much detail as possible can’t be overstated. A Surety relies heavily on this information for its investigation and will be far more likely to provide the Owner with a definitive response if the information is thorough and prompt.
- Be flexible where possible. The bond calls on the Surety to deliver its acknowledgement and communicate its position within a very small window of time and it’s certainly your right as an Owner to expect the bonding company to work to resolve your claim as expeditiously as possible.
But Paragraph 3.3 of the bond also allows for flexibility by requiring the surety to provide its position to the owner within 20 business days; or "… such longer period as may be agreed between the Surety and Owner". In the event of complex claim with multiple layers of issues and/or technical factors to consider, 20 days may not allow sufficient time for a surety to do a thorough evaluation and make a definitive determination as to its liability.
Granting the Surety the time it needs (along with the required information of course), particularly in circumstances where the status of the default is not straightforward, will enhance the likelihood of a receiving definitive response and a plan of action to move forward.
3. Keep Expectations Realistic.
A surety bond can help an Owner navigate through the minefield of problems created by a Contractor failure, but it can’t make those problems simply disappear.
Regarding the issue of delays, when a messy default occurs on a very complex project, delays will be inevitable; irrespective of the contract security in place. Again, a bond cannot turn back the clock, but having that bond will bring in the expertise of the Surety to minimize the delays and mitigate the impact of their effect.
This information is provided for information purposes only and is not intended to be exhaustive or authoritative. Nothing here should be construed as legal advice and readers are urged to read the Construction Act of Ontario and supporting documentation thoroughly and consult with counsel for advice as to specific issues.