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Why use Headstart?

Headstart was designed to deal specifically with the needs of a general contractor and offer a strong value proposition for this customer segment.  The defining feature of the Headstart approach is the flexibility that it affords general contractors (obligees) in controlling the claim resolution process.  Upon submitting a notice of claim, the general contractors (obligee) is given the option of choosing:

  1. The “traditional” surety solution; whereby the surety conducts its investigation and if liability is accepted, proceeds to rectify the default, exercising options similar to those set out in a standard bond form; or
  2. The “Headstart” option which allows the general contractor (obligee) to implement its own claim mitigation solution upon providing the surety with an acceptable completion proposal.

Headstart offers a general contractor (obligee) the following advantages when faced with the default of a subcontractor: 

 Flexibility    The general contractor (obligee) has two choices:
 Headstart Option; or Surety Controlled Completion Option.
 Transparency     Details of claim process and forms are available when Headstart issued, well in advance of any claim being made.
 Responsiveness     Promises a response within three (3) business days of the Notice of Claim Letter if the Headstart Option is chosen.
 Speed     Rapid restart of productive work on the project with the Headstart Option.
 Certainty     General contractor (obligee) selects replacement contractor(s) with Headstart (subject to terms).
 Capital     Shortfall payments are advanced as necessary.



How does Headstart work?

Headstart provides a general contractor (obligee) with two options.  One option is to select the traditional process currently employed by the surety in a conventional performance bond approach called the Surety Controlled Completion Option.  The second is the Headstart Option providing speedy restart of the work where this is critical. 

What makes Headstart distinct?

Headstart has a number of distinct features:

1.  Pre-Claim Meeting

Headstart offers the option of requesting a Pre-Claim Meeting between with the Obligee (general contractor), Principal (subcontractor), and the Surety.  The purpose of this meeting is to explore solutions to problems on the project before circumstances deteriorate to the point of having to submit a claim under Headstart.  If this meeting does not generate a positive result for the general contractor (obligee), the general contractor (obligee) is free to proceed with its claim under Headstart if it so chooses. 

2.  Access to Key Documents With URLs in Headstart

Another important and unique feature is the ability to access the necessary documents associated with advancing a claim by way of URL embedded within the Headstart bond.  Two such documents are the Notice of Claim Letter and the Mitigation Agreement.

Notice of Claim Letter

The Notice of Claim Letter is an important multi-purpose document.  It helps eliminate the delay that can result from misunderstandings around the surety’s responsiveness when claim notices contain imprecise language about the general contractor’s (obligee’s) intent to initiate a claim.  The Notice of Claim Letter includes precise language that will initiate a claim under Headstart, as well as a pre-set list of required documents that the surety will use to conduct a quick initial review of the claim.  Lastly, the Notice of Claim Letter allows the general contractor (obligee) to select the form of response required from the surety.  Selection of the Headstart Option, together with clear and concise details of the general contractor (obligee) completion proposal, will enable a quick response by the surety.  The Notice of Claim Letter not only streamlines the claim notice process enabling a faster response from the surety, but it also adds greater transparency for users of the product.

Download the Headstart Notice of Claim Letter.

Mitigation Agreement

The Mitigation Agreement allows all parties to proceed with the work under a complete reservation of rights.  This enables the surety to continue its investigation even after the job has restarted.  

Early access to review the Mitigation Agreement is another key component of the Headstart claim process that facilitates the quick restart of the project and enhances process transparency.  The general contractor (obligee) can take the time it needs to familiarize itself with the document and have it reviewed by legal counsel, if necessary, prior to making a claim under Headstart so as not to impact the restart of the project.  Mitigation agreements have been used extensively in the traditional claim resolution process for many years. 

Download Headstart Mitigation Agreement.

3.  Requirement to Take the Work Out of the Principal’s Hands

Another important feature of the Headstart Subcontractor Performance Bond is the requirement to not only declare the subcontractor (principal) in default, but to also take the additional step of taking the work out of the principal’s hands.  It is important to understand that while this additional step is not specifically referred to in the traditional bond forms, it is nonetheless a precondition to any intervention by the surety in the project.

In the messy world of construction defaults, it’s not uncommon for a solvent contractor to dispute the obligee’s default declaration.  This inevitably generates a prolonged exchange of correspondence, often with the involvement of legal counsel to try to resolve the issues.  Under the terms of a conventional form of bond, a surety can find itself in the middle of a contentious dispute between the obligee; demanding a response to the claim, and the principal insisting that the default was wrongfully declared and demanding that the surety support its position.  This dispute often causes delays and uncertainty in the process for all parties.

By requiring the obligee to take the additional step of taking the work out of the subcontractor’s hands, we eliminate the debate over whether the surety can respond.

4.  Surety’s Response in 3 Business Days

The keystone of Headstart is the promise that the surety will respond within three (3) business days if the general contractor (obligee) selects the Headstart Option in the Notice of Claim Letter.  The surety is committed to deliver a response within three (3) business days of receipt of the Notice of Claim Letter together with the required attachments including any proposal to complete the project.  After reviewing the information, the surety will provide one of the following responses:

Accept Completion Proposal and Proceed Under Reservation of Rights in Mitigation Agreement

If the surety, is prepared to accept the completion proposal, it will then tender to the general contractor (obligee) the form of Mitigation Agreement for execution that is found in the URL in Headstart; or 

Reject Completion Proposal and Revert to “Surety Controlled Completion”

If the completion proposal submitted by the general contractor (obligee) is incomplete, inappropriate or otherwise not acceptable, the process then follows the “Surety Controlled Completion” arrangement which is similar to the traditional surety claims process; or

Deny Liability

Where the surety is able to conclude that there is no coverage under Headstart, the surety will advise the general contractor (obligee) that it denies liability.  In this instance, the general contractor (obligee) is free to proceed with a replacement contractor on its own schedule and may pursue any other remedies available to it.

 

Delivering Value to the Construction Industry

The Surety Association of Canada and its members introduced the SAC Headstart Subcontractor Performance Bond because they recognized that a delay on a construction project for a general contractor can be a significant risk and can quickly erode profits on a project.  Only Headstart will allow a general contractor (obligee) to restart work on a project before the surety has an opportunity to investigate fully the circumstances surrounding an alleged default under a construction contract.

Headstart is a further example of how the Surety Association of Canada and its members continue to strive to respond to the changing market needs and to offer enhanced value to the Construction Industry.

For more information on the SAC Headstart Subcontractor Performance Bond, contact the Surety Association of Canada office at (905) 677-1353 or surety [at] suretycanada.com.