Form 32 - Performance Bond
In the drafting of the Form 32 Performance Bond, SAC along with the Ontario Ministry of the Attorney General started with the Surety Association of Canada Process Enhanced Bond which was published in 2012. Most of the changes to that original document have been made with the objective of further enhancing the processes around claims and administration, and/or to provide clarification as to the meaning and intent.
While there are few provisions that impose additional liability on the contractors and their sureties (these will be flagged in the discussion below), for the most part the risk profile has not been significantly expanded beyond that found in CCDC or the SAC bond.
There have also been some changes or additions to the terminology employed. For example:
- The term “Demand” becomes "Notice"
- "Emergency Work" becomes "Necessary Interim Work"
- "Remedial Work" becomes "Mitigation Work"
- The parties have been renamed with "Principal" becoming "Contractor" and "Obligee" becoming "Owner"
In addition to these new names for old provisions, several new defined terms have been introduced:
- Surety's Position
- Surety's Option
- Owner's Direct Expenses
- Original Contract
- The Investigation
These new provisions will be discussed in more detail below.
As to the specific components of the bond itself we offer the following observations and guidance:
- The opening paragraph allows several spaces for multiple sureties.
- Paragraph 1: Written Notice
- Sets out the Notice to the Surety and provides that the Surety has no obligation until such a Notice has been received
- Provides for co-sureties or multiple sureties.
- Paragraph 2 provides for a Pre-Notice Meeting to address potential issues that could lead to a default. This provision is similar to the SAC form in that it is convened only at the request of the Owner and will take place within 7 business days of the Owners’ request to the Surety.
- Paragraph 3 sets out the requirements for the Surety’s Investigation, its response options and its obligations under the bond.
Among the requirements:
- If request for a Pre-Notice Conference is made, the Surety must propose such a conference within 7 business days.
- Upon a Notice of Claim, the Surety must:
- Acknowledge receipt of the Notice within 4 business days, using Schedule B which sets out any required information.
- Propose a Post-Notice Meeting within 10 business days and attend that meeting.
- Within 20 business days, provide Obligee with the Surety’s Position as per Schedule C.
- Meet with the Owner (at Owner’s request) to discuss status of investigation within 5 business days of the Owner’s request.
- Once a Surety evaluates the Notice of Claim and supporting documentation from the Owner, it has the following options by way of a response:
- Accept Liability and promptly initiate one of the completion options.
- Deny liability but provide reasons for such a denial.
- Inform the Owner that it cannot determine whether or not it is liable under the bond. If this option is presented to the Owner, it must be accompanied by reasons for taking this position as well is a summary of what is needed to complete the investigation. With the Owner’s agreement the Surety must continue the investigation.
- Paragraph 4 sets out the parameters for the Necessary Interim Work. These provisions are similar to those found in the SAC bond provisions for "Emergency Work" except:
- 4.1 c) has been added, and requires that any action taken by the Owner is in accordance with applicable law.
- The Owner is now required to notify the surety within 3 business days of commencing any work under this paragraph. The SAC bond contains no such requirement.
- Paragraph 5 Now deals with the Mitigation Work (formerly Remedial Work). Again, the approaches taken under each bond are similar with the exception of the timeline for arranging a Post-Notice Conference in 5.1. The Ontario bond requires that this meeting take place within five business days of the receipt of the Notice. The SAC bond allowed ten days to convene the meeting.
- The Completion Options described in Paragraph 6 are virtually identical to those in the SAC bond and in the current standard CCDC document.
- Paragraph 7 is entirely new and seeks to provide more clarity around the Owner’s default related costs and expenses that are compensable under the bond. These covered expenses are fully articulated in 7.1. Also, under Paragraph 7:
- 7.2 includes protection for "extension of duration" as defined in the Act. Costs of extended duration are essentially the costs of carrying out the work.
- 7.3 establishes the Surety shall have no liability for:
- Liquidated or other Delay Damages
- Consequential Damages
- 7.4 allows the owner to deduct allowable default related expenses from the Balance of Contract Prince (see discussion of Paragraph 9 below) that will be payable to the Principal or its Surety.
- Paragraph 8 sets out the four Conditions Precedent to the Surety’s liability under the bond. These conditions reflect those set out in the SAC bond, however, as discussed above, there is effectively a fifth condition precedent found in Paragraph 1.1 which sets out that the Surety has no liability until the Owners’ Notice of Claim has been delivered to the Surety.
- While the concept of Balance of Contract Price is incorporated into the SAC document, the Ontario Bond devotes a new section in Paragraph 9 to defining the term and setting out the parameters for its application.
9.2 requires that the Owner use these funds to mitigate the surety’s loss under first the performance bond and then the payment bond and make payments as directed by the Surety. This provision was added to ensure that project funds stay within the construction pyramid.
- Paragraph 15 sets out the requirement for sending notices to the named parties under the bond along with the designated addresses for the Contractor Owner and Surety. This follows the SAC model with changes added to make the document Ontario specific.
- The Schedules attached to the bond were devised to bring uniformity to the Claims process by providing guidance to Owners and minimize or eliminate the need to prolong the claims process by asking for additional or more complete information. The three Schedules referenced within the text of the bond are:
- Schedule A - Form of Notice of Claim.
- Schedule B - Form of Surety’s Acknowledgement; including a sample list of required information to conduct the investigation.
- Schedule C - Surety’s Position setting out which of the three response options chosen and, if applicable the reasons for that choice.