CCDC Bond Forms 2024

An Evolutionary Change in Surety Protection

On May 21, 2024, the Canadian Construction Documents Committee (CCDC) published the 2024 editions of its standard surety bond forms including Form 220 (Bid Bond), Form 221 (Performance Bond) and Form 222 (Labour & Material Payment Bond).

To say that this update is long overdue would be a massive understatement. The surety bond documents were last updated in 2002 and by comparison, these earlier instruments are antiquated and by today’s standards, not adequately responsive to the current level of service required by key stakeholders (e.g. contractors and Obligee/end-users).

Over the first two decades of the millennium, SAC would frequently hear from owners and claimants, expressing their frustration about the inadequacy of the protection offered by the standard bond language. Often these owners would take matters into their own hands, creating and imposing their own bond wordings to address these inadequacies. Needless to say, these “alternative” wordings would often include extremely onerous provisions that would make it difficult for small to mid-sized contractors to obtain surety support, even on projects for which they would otherwise be qualified.

As an interim measure, the Surety Association of Canada published two sets of “updated” revised bond wordings, the first in 2012 and a second in 2021. These attempted to bring a more balanced approach to the surety-contractor-owner relationship while addressing the concerns of frustrated end-users and closing the gap between expectations and delivery. The efforts succeeded, however modestly and several high-profile profile public owners have adopted and continue to use these earlier SAC creations.

The 2012 and 2021 SAC bond wordings are still available for use and can be found on this website. However, with the long-awaited publication of the 2024 CCDC bond forms, these earlier SAC forms, will no longer be the focus of our association’s promotional efforts and we actively encourage owners to require these new state-of-the-art standards in their tender and contract documents.

As SAC members and other stakeholders may be aware, many (perhaps most) of the changes found in the 2024 versions of the CCDC bonds were inspired by the prescribed standards that were drafted for the regulations under the Construction Act of Ontario which was implemented in 2018. The new CCDC forms, particularly the performance and payment bond documents are much more detailed and bring in provisions not included, or even contemplated in earlier versions.

Most of these new provisions have been added to bring more clarity and responsiveness to the surety claim process. Others were included to address stakeholder concerns around the protection afforded by the bonds and what can and should be expected of a surety in the event of a claim. Still others were introduced to address recent developments, legal/judicial and commercial, that impact the construction and surety industries.

One key point of note is that the “risk profile” of the surety bond standards has not changed. In other words, the bonds don’t offer any broader range of coverage or give Obligees or Claimants any more than the predecessor 2002 versions did. The bonds continue to be conditional surety instruments which respond upon default of the underlying obligation. The remedies available to the surety remain unchanged as well.

What has changed is:

  1. The level of detail around the coverages which should go a long way to bringing more clarity and certainty to the protection provided.
  2. The enhanced level of responsiveness required of a surety when delivering its claim service.
  3. With the performance bond, the opportunity for more frequent constructive interaction between the Surety and the Obligee.

CCDC 220 – Bid Bond

The 2024 version of CCDC 220 includes several features not found in prior versions.

  • Elimination of References to “Tender Date”: Under the 2002 version of CCDC 220, a space was left for insertion of the “Tender Date”. Over the years, this created a great deal of confusion among users of the bond across the country as to whether this is synonymous with “closing date”. This confusion led some Obligees to demand that the surety issue an addendum to the bond each time the tender closing was extended, and, in some cases, it resulted in tenders being disqualified. To address this concern, the 2024 update follows the approach taken in the U.S. where the requirement to enter a Tender Date has been simply eliminated.

    During the discussions, it was pointed out that problems could arise should there be more than one tender submitted to the same Obligee at the same time, a not uncommon occurrence. In order to remove this ambiguity, the revision now includes parenthetical instructions around the blank for the job description that reminds users to enter the project name, full project description, location, and any other distinguishing details of that particular tender.

  • Bonds vs Security: The binding condition of the 2002 Bid Bond obligates the Principal to “… (enter) into a formal contract and (give) the specified security…” (emphasis added). The problem with this language is that a surety would not be in a position to provide such a guarantee in instances where alternative forms of security were required (e.g., a bank ILOC). The new wording calls for the Principal to “(Give) such bond or bonds as may be specified in the Obligee’ s bid documents …".

  • Validity Period: The 2024 bond introduces the concept of the “Validity Period” to clarify the length of time a bond would remain enforceable after tender closing. Obligees had complained that the concept was somewhat ambiguous in the 2002 form and the revised language attempts to provide some clarification.

    As a condition precedent, the bond requires the Principal’s bid to be accepted within the Validity Period which is defined as “…the time period prescribed in the Obligee’s bid documents for acceptance of the bid, or, if no time period is specified in the Obligee’s bid documents, sixty (60) calendar days from the closing date of the bid.”. The bond allows for extensions of the Validity Period, provided that the Surety’s consent is acquired for any such extensions exceeding 60 days.

  • Contact Details: The signature provisions require the contact coordinates of the three parties to the bond to be included. This is the same approach found in the performance and payment bond forms and brings the instrument into conformity with these two documents.

  • Québec Coverage Clause: In the second last paragraph which deals with suit limitation, a sentence has been added to ensure that the “coverage period” of one year is set out. This ensures compliance with the Québec Civil Code.
CLICK HERE to open/download the CCDC 220 - Bid Bond (specimen version).

CCDC 221 – Performance Bond

Making a quick comparison of the 2024 edition of CCDC 221 with its predecessor 2002 version, the feature that jumps out immediately is its length. The 2002 document was one page long consisting of 600 words while the 2024 update is a 13-page missive with 5,400 words.

At first glance the length of the updated bond can be intimidating to project owners, contractors and even sureties, sparking concerns of red tape and hidden obligations. However, a closer reading of the terms of the bond reveals that most of the changes to the original document have been made with the objective of further enhancing the processes around claims and administration, and/or to provide more clarity and transparency as to the meaning and intent. Again, the risk profile has not been expanded beyond that found in the 2002 CCDC bond wording.

That said, there will certainly be more demands placed on sureties and contractors from an administrative and responsiveness standpoint. The bond now imposes strict requirements on sureties, and by extension, the bonded contractors, with respect to both the timeliness of response and the obligations to engage/ collaborate with the Obligee. In addition, the bond seeks to eliminate ambiguity and bring clarity to the claims process by providing details around the extent of coverages that simply weren’t found in the earlier version.

Some of the key additions and updates found in the 2024 version:

  • Terminology and Defined Terms: Commonly understood terms that were used or implied in the 2002 edition of the bond are now given precise definitions to reduce the likelihood of misinterpretation (e.g. Notice, Balance of Contract Price). Also, several new terms have been introduced to provide additional clarity around the claims process and the obligations of the parties to the bond (e.g. Pre-Notice Meeting, Surety’s Position). Note that defined terms are capitalized in the bond.

  • Enhanced Communication/Collaboration: Provisions allowing more and better communication and collaboration between the Obligee and the Surety. For example:
    • A Pre-Notice Meeting to address potential issues that could lead to a default. This is convened only at the request of the Obligee and must take place within 7 business days of the Obligee’s request to the Surety (Section 2).
    • A Post-Notice Conference to determine what action needs to be taken to ensure continuity of the project and mitigation of costs during the Surety’s investigation (Section 5).

  • Flexibility: Enhanced flexibility for Obligees as they seek to address time-sensitive priority issues that cannot wait for the conclusion of the Surety’s Investigation, including:
    • Necessary Interim Work which allows an Obligee to address urgent issues surrounding public safety and to prevent damage to, or deterioration of the work (Section 4).
    • Mitigation Work which allows an Obligee to undertake non-emergency remedial work required to minimize or eliminate work stoppages and keep the job going without losing their rights under the bond (Section 5).

  • Timelines for Acknowledgement and Response: Strict timelines for the Surety to acknowledge receipt of Notice of Claim and respond to that Notice with its position regarding the acceptance of liability (Sections 3.2 and 3.3). For example:
    • Seven business days to arrange a Pre-Notice Meeting if requested by Obligee,
    • Four business days to acknowledge receipt of Notice and request additional information/documentation;
    • Twenty business days following receipt of the Notice to provide the Obligee with the Surety’s Position;
    • Five business days following receipt of the Notice to arrange for a Post-Notice Conference with the Obligee.

  • Coverage Clarity: More clarity around what is covered by the bond and what is not (Section 7).

  • Clarity around Claims Process: Features designed to streamline the handling of claims by prescribing a specific format for Claims Notices and Surety’s responses. This provides guidance to Obligees and Claimants as to the information required and steps to follow when submitting a claim and will ensure that the claim is resolved more efficiently and expeditiously. (Schedules A, B and C).

  • Clarification around Limits on Surety’s Liability: The underlying intent of any performance bond is that the Surety’s liability is secondary to that of its Principal and that the bond cannot be invoked unless and until the Principal cannot or will not perform. In November 2019, the Court of Appeal of Alberta rendered a judgement in HOOPP Realty Inc. v The Guarantee Company of North America which held that in certain circumstances, the surety’s could be held liable under its bond, even where there was no underlying liability on the part of the Principal.

    In Section 10.2, the 2024 performance bond addresses this issue head-on and seeks to restore the principle of secondary liability. The section reads in part:

    The Surety’s responsibility … shall be secondary to, and not greater than, that of the Principal under the Contract. The Surety shall not be obligated to pay any sums which the Principal is not obligated to pay the Obligee.

  • Suit Limitation Language: The revised performance bond modifies the time allowed for an Obligee to initiate an action under the bond. In the earlier version the limitation period was simply two years from the earlier of substantial performance or a declaration of default.

    The 2024 edition has modified this to accommodate the concept of “Ready-for-Takeover” (RfT), bringing the bonds into alignment with the recently modified CCDC Contract documents. Under the new provision, the suit period becomes.
    • The lesser of two years from substantial, or two years from RfT (to a maximum of 30 months from substantial performance), where the underlying contract is set out on a CCDC document that includes a defined RfT; or,
    • Two years from the earlier of substantial performance or a declaration of default where the underlying contract is not a CCDC standard document. (Section 12.1).

  • Ensuring Compliance in Québec: The addition of Section 12.3 (the “Québec Clause”), attempts to address the coverage period issue as set out in the Québec Civil Code and ensures the bond’s applicability in that province.
CLICK HERE to open/download the CCDC 221 - Performance Bond (specimen version)

CCDC 222 – Labour & Material Payment Bond

Many of the changes introduced in the Performance Bond have been duplicated in the 2024 version of CCDC 222 – Labour & Material Payment Bond. Here, too, the updated version has been expanded, going from two to seven pages in length. Again, this additional language has been included for the purposes of greater clarity and enhanced responsiveness. 

Other features of the 2024 Performance Bond have also found their way into its L&M Bond companion, such as:

  • Terminology / Defined Terms: Changes and additions to the terminology have been brought in. Many of the new or revised terms are similar to those found in the performance bond (e.g. Notice of Claim, Investigation, Surety's Position). Additional payment-bond-specific terms such as Claimant and Holdback have also been incorporated.

  • Clarification and Streamlining Claim Process: The use of template Schedules for submitting a Notice, making an Acknowledgement and providing the Surety’s Position are provided as part of the bond. (Schedules A, B and C).

The 2024 edition of CCDC 222 also includes several new features that are specific to the nature of the risk and some that reflect developments in jurisprudence and new legislative requirements. 

  • Timelines for Acknowledgement and Response: Like the new Performance Bond, the 2024 version of CCDC 222 also includes strict timelines for the Surety to acknowledge receipt of Notice of Claim and respond to that Notice. In the payment bond, the timelines reflect the risk and timeliness requirements for payment of trades and suppliers. The ultimate objective here is the minimization of any slowdown, or stoppage in the flow of funds down the construction pyramid. These timeline requirements include:
     
    • Three business days to acknowledge receipt of Notice and request additional information/documentation from the Claimant (Paragraph 8 a.);

    • Earlier of ten business days following receipt of Information or twenty-five business days following receipt of the Notice for the Surety to provide the Obligee with the Surety’s Position (Paragraph 8 b.);

    • Ten business days following delivery of Surety’s Position to pay any undisputed amounts owing (Paragraph 9).

  • Explanation for Disputing Claim: The Surety is required to provide Claimant with the reasons for any dispute surrounding the amount claimed (Schedule C).

  • The Trust vs Non-Trust Jurisdictions: The traditional CCDC payment bond, which had been in common use for almost half a century, was set up as a “Trustee Form” that requires the Obligee to assume the role of “trustee” on behalf of the subcontractor/supplier Claimants. This is due to a legal principle known as the “third party beneficiary rule”, which holds that no one is entitled to any benefits, nor can they bring any action under a contract or agreement to which they are not a party. By assuming the role of trustee under the bond, the Obligee can bring action on behalf of the unpaid Claimants.

    A few jurisdictions (Ontario, Manitoba and B.C.) have been able to get around the third-party beneficiary rule by legislative language which explicitly allows a Claimant to claim against the bond directly, thereby negating the necessity for the trust provision under the payment bond.

    The 2024 CCDC Labour & Material Payment Bond is designed to be used in all jurisdictions, most of which will not permit claims from third party Claimants. It incorporates a work-around found in a new Paragraph 3 which has been added to bring back trust provisions only in those jurisdictions where the third-party beneficiary rule applies.

  • The Valard Effect: Related to the issue of trustees in payment bonds is the impact of the February 2018, Supreme Court of Canada decision in Valard Construction Ltd. v Bird Construction Company. The ruling held that under a trustee bond form, the designated trustee would assume all the responsibilities of a traditional trustee; with its obligations not limited to the more narrowly defined duty of acting as a Claimant’s proxy; as was intended under the bond.

    In the updated 2024 version, a new Paragraph 4 has been added to nullify the fallout from the Valard decision. This seeks to re-establish the principle that any trust created under the bond will be a “bare” trust and not include the traditionally onerous trust obligations.

  • No Restriction on When a Claim can be Advanced: Under the terms of the 2002 version a Claimant could not advance a claim prior to 90 days following the last day worked, or materials supplied. In the new version, this restriction has been removed.

  • Surety’s Option Should Claims Exceed Bond Amount: Paragraph 11 allows the Surety to apply to the court for direction in the event that the aggregate amount of outstanding claims could exceed the bond amount.
CLICK HERE to open/download the CCDC 222 - Labour & Material Payment Bond (specimen version)