Following up on our previous bulletin, Performance Bonds: What Project Finance Lenders Should Know, in this bulletin, we compare the widely used Canadian Construction Documents Committee's Performance Bond Form 221-20021 ("CCDC Form") with the new Form 32 - Performance Bond that is mandated for certain projects by the Ontario Construction Act2 ("Form 32").
Background
Pursuant to section 85.1 of the Construction Act and section 12 of the accompanying General regulation, all "public contracts" with a contract price of $500,000 or more require the contractor to furnish both a performance bond and a labour and materials bond that, in each case, must be in the prescribed forms and have coverage limits of at least 50% per cent of the contract price.3 The Act defines a "public contract" as a contract where the owner is the Crown, a municipality or a broader public sector organization, but excludes contracts where the contractor is an architect or engineer from the application of that section.4 Thus, the provision is meant to capture all government-procured construction contracts with a contract price of $500,000 or more.
In the context of public-private partnership ("P3") and alternative financing and procurement ("AFP") projects, section 1.1(4) of the Act clarifies that the "public contract" for the purposes of section 85.1 is not the typical project agreement between a special purpose vehicle and the government entity, but rather the "dropdown" construction contract or design-build contract between that special purpose vehicle and the contractor.5 Section 3 of the General regulation further stipulates that the minimum coverage limits for the bonds are capped at $50 million for P3 or AFP projects - i.e., the 50% requirement does not apply to projects with a contract price greater than $100 million.6
As with the other new provisions of the Act, the requirements of section 85.1 do not apply to contracts where the procurement process was commenced before July 1, 2018.7 Under section 1(4) of the Act, a procurement process begins whenever a request for qualifications, request for quotation, request for proposals, or a call for tenders is first made.8 In the context of projects procured by Infrastructure Ontario, for example, this would be the date that the request for qualifications is issued for a typical procurement. Notably, a market sounding or a Request for Expression of Interest issued by Infrastructure Ontario does not on its own constitute the commencement of a procurement process.9
Form 32
Form 32 to the Construction Act was developed by...
