The Prescribed Bond Forms

The key driver behind the entire Bill 142 initiative was the need to streamline the payment process and expedite the flow of money down the construction payment chain. In search of that objective, the September 2016 Report of the Expert Review entitled “Striking the Balance” made 100 recommendations to the Attorney General of Ontario; virtually all of which found their way into the legislation in some form. Included in that group were three key recommendations regarding surety bonds:

  1. The Act should be amended to require broad form surety bonds to be issued for all public sector projects, the form of such surety bonds should be developed in consultation with the Surety Association of Canada, and once finalized they should become Forms under the Act.
  2. The Act should be amended to require sureties to pay all undisputed amounts within a reasonable time from the receipt of a payment bond claim.
  3. A Regulation to the Act should be promulgated to embody a surety claims handling protocol, and that such surety claims handling protocol be developed in consultation with the Surety Association of Canada.

From January to April 2018, the Surety Association of Canada worked closely with the Attorney General and MAG staff to develop bond language which met these criteria and aligned with the spirit and intent of the legislation. On April 25, 2018 the final, cabinet approved template bond forms were posted to the website:

All three of these template bond forms can be accessed and downloaded by clicking the links above or by CLICKING HERE.

Some of the more notable features of the new bonds:

  • A claims handling protocol embedded within each of the bonds themselves which includes:
    • Fixed timelines that require a surety to respond to a notice of claim and deliver its response within the specified periods.
    • Template schedules attached to all three bond forms that provide guidance to Obligees, Claimants and Sureties. These should bring more uniformity and certainty to the claims process and minimize delays caused by incomplete or improperly prepared claim submissions.
  • More clarity in the performance bond, around extent of coverage for owners’ direct costs and costs for time extensions that are consistent with the provisions of the Act itself. This is found in Paragraph 7 of the bond which seeks to provide clarification as to which costs are covered, and which are not.
  • The new performance bond borrows from the 2012 SAC Process Enhanced Bond and incorporates the concepts of a pre-default and post-default meetings; along with Necessary Interim Work (formerly Emergency Work) and Mitigation Work (formerly Remedial Work).

    These provisions encourage communication between surety and owner and provide owners with more flexibility to ensure that the work site is protected, and work stoppages are minimized while the surety is conducting its investigation.
  • A broad-form labour and material payment bond that includes:
    • Protection to 2nd tier Claimants (sub-subcontractors) in the same manner as provided under the federal government payment bond.

      Note that the protection to these 2nd tier claimants is “…limited to such amounts as the Contractor would have been obligated to pay to the Sub-subcontractor under the Construction Act (the “Act”)".
  • A requirement for the Surety to pay undisputed promptly (within 10 business days of the Surety delivering its Position to the Claimant).
  • Removal of the “trustee” provisions under the payment bond. This reflects the fact that the Act itself allows for Claimants to claim directly under the bond, circumventing the Third Parry Beneficiary Rule and negating the need for a “Trustee” form.

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.