SAC releases new bond form for IPD projects
The Surety Association of Canada (SAC) has released a new specialty bid form designed for use with Integrated Project Delivery (IPD) models.
As IPD is increasingly being used on projects throughout the country—including on the Third Crossing Bridge in Kingston—the organization identified a gap in the use of bonds.
It found that IPD proponents tended to dismiss concerns about the need for protection against contractor failure. Contractors told SAC that the all‐hands‐on‐deck approach of the IPD arrangement and a coordinated focus on the common interest among IPD partners diminished any such risk to the point of being insignificant.
SAC president Steve Ness suggests that attitude may overlook some risk elements.
“Bonding companies have learned the hard way that the risk of contractor default doesn’t always originate within the four walls of the project itself,” he said. “Many and perhaps most of the issues that give rise to project contractor failure are business or finance related and may have little or nothing to do with that contractor’s ability to successfully perform the work on any particular project.”
Ness pointed out that replacing a failed contractor midway through a construction project can be an expensive proposition. This situation begs the question: What will happen should a major participant in an IPD contract become insolvent?
SAC says its new template performance bond responds to the particular structure and working dynamics of the IPD project arrangement. In creating the product, SAC undertook a comprehensive review of the relationships among IPD contract. It further identified the points of vulnerability to the risk of failure of any of the participants to the IPD team.
The new bond template has been designed to be used in conjunction the CCDC-30 – Integrated Project Delivery Contract, and can be modified to suit variations on the IPD theme. Highlights of the new tool include:
- an arrangement that suggests each project participant posts its own bond as a way of guaranteeing its performance under the IPD Contract,
- identifying the project owner as the sole obligee under the bond
- protection for the owner from any increase in costs that result from a principal’s default and termination, and
- a claim on the bond that 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,” says Ness. “A surety instrument specifically created for use on IPD projects will go a long way to mitigating that risk.”