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New specialty bond form for IPD projects from surety association

May 28, 2020 | By Anthony Capkun

May 28, 2020 – Earlier this month, the Surety Association of Canada (SAC) board approved a new specialty bond form designed for use with Integrated Project Delivery (IPD) projects.

The new bond template had been under development for more than a year and is designed to be used in conjunction with the standard CCDC-30 Integrated Project Delivery Contract.

IPD presents a new set of challenges to the construction industry as it works to create a sustainable and workable model that puts the theory into practice, SAC says. One such challenge surrounds risk mitigation and, in particular, the risk of contractor (or other party) failure.

In response, SAC developed a template performance bond that responds to the structure and dynamics of the IPD project arrangement. In creating this new product, SAC undertook a review of the inter-relationships between parties to IPD contracts. From there, the drafting team identified the points of vulnerability to that risk of failure of the project contractor and/or one of the other construction participants to the IPD team.

While the new bond template is intended for use with the CCDC-30 standard, it also seeks to be flexible enough for use with modified versions of this document and for other variations on the IPD theme. A few highlights and observations:

• The new bond arrangement contemplates that each construction participant in the project will post its own bond that guarantees the performance of its obligations under the IPD Contract. Thus, there may be several bonds on any given project, posted by each of the major construction parties.

• As the source of project funding and ultimate bearer of the financial risk of a cataclysmic event, the owner is the logical choice as obligee/beneficiary under the bond. The SAC IPD Performance Bond identifies the Owner as the sole obligee under the instrument.

• The SAC IPD Performance Bond will protect the Owner from any increase in costs of completing the Principal’s Work under the IPD Contract following that Principal’s default and termination under the terms of the IPD Contract. This will include any additional direct costs (shortfall) to complete the Principal’s work along with any HST/GST and Owner’s expenses (as defined in the bond).

• A claim on the bond can be advanced when the Principal is in default of its obligation and its participation in the project has been terminated by the other members of the IPD team.

“The risk of a major contractor insolvency or failure, if not adequately managed, can have catastrophic consequences to the project and all of its participants,” said SAC president Steve Ness. “A surety instrument specifically created for use on IPD projects will go a long way to mitigating that risk.”

A specimen copy of the new SAC IPD bond—along with a User’s Guide that explains its features—can be reviewed and downloaded here.

The Surety Association of Canada is the national trade advocacy association representing the interests of the surety industry across Canada. Its members consist of primary surety firms, surety reinsurers, surety/insurance brokers, and other organizations that provide related and complementary services to the surety industry.

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