Construction Bonds & Delay Claims

Bond

A special form of contract in which one party (the surety) guarantees performance by another party (the principal) of certain obligations to the obligee

Obligee

The party to whom obligations are owed and is protected by the bond to have claim rights if the principal defaults

T/F Bonds are a form of insurance

False

Law of suretyship

A 3-party agreement where a surety promises a creditor to fulfill the debt/obligation of a principal debtor if they default by acting as a guarantee through surety bonds

Indemnity Agreement

The surety requires the principal and major shareholders to indemnify the surety against any loss

Bid bond

'- Principal = tenderer

- Obligee = tendering authority

- 10% of bid price

- Risk = contractor fails to enter into construction contract after bid acceptance by owner

- Surety pays the difference between tenderer's bid and next lowest bid up to bond amount

- 6 month actionable period

Performance bond

'- Principal = contractor

- Obligee = owner

- 50% of contract price

- Risk = default in contract performance

- 2 year actionable period from contract termination date

Labour and material payment bond

'- Principal = contractor/subcontractor (+ material suppliers)

- Obligee = owner/contractor

- 50% of contract price

- Risk = non-payment for 90 days

- 120 day claim filing period from last work/material supply

- 1 year actionable period on date of ceased work

Lien bond

'- Principal = contractor

- Obligee = registar of the court of contractor's lawyer

- Lien amount

- Risk = non-payment of lien judgement

- Actionable period set out in Limiation Act and Builders' Lien Act

Causes of delay (3)

Design process, material delivery, work performance

Entitlement to delay damages (delay claims)

Owner entitled to damages due to late completion; contractor entitled to demanages/extension due to factors beyond their control

Compensable delays

One party is contractually entitled to recover damages solely caused by the delaying party (no concurrent delays)

Concurrent delays

2+ events occurring at the same time, both of which would have been sufficient to have caused the delay; results in excusable time extension but no damages

Excusable delays

Not attributable to the fault of any party (unforeseeable event, not a result of negligence); entitles a party to time extension; may/may not be compensable

Critical path

Longest path through the contract completion date

Float

Available slack time in an activity or project schedule; Critical path activities have no float

Notice provisions for delays (3)

'- Contractor must give a notice of delay claim within 10 working days to be entitled to claim time extension

- Contractor must give timely notice of monetary claims

- The party making the claim shall submit a detailed account and grounds for claim to the consultant within a reasonable time

Delay damages

A claim for costs that arise from inefficiencies created by delays

Contractor costs (2)

Time-driven costs, escalation costs

Owner costs (3)

Extended project oversight costs, increased construction costs, lost profits