Surety Bonds: Ontario’s New Labour & Material Payment Bond

As we outlined in our May 22, 2020 blog post about the Form 32 – Performance Bond, in July of 2018 the modernization provisions of the Ontario Construction Act came into effect. Not only did this include a new Form 32 – Performance Bond but it also included an updated and enhanced Form 31 – Labour and Material Payment bond.

The new form provides for both enhanced coverage for claimants as well as reduced timelines for the surety to respond to claims.

Some of the key updates include the following:

  • The definition of claimant is expanded to include 2nd tier sub-trades. For example, under the previous CCDC form a claimant was defined as one who had a direct contract. Now the definition has expanded to include those trades and suppliers one level removed from those with a direct contract.
  • Improved response requirements for the surety around providing notice and providing a position. These include:
    1. Three business days for the surety to acknowledge the claim
    2. For a sub-contractor claim – the Surety’s position must be delivered in 10 business days from receipt of the information or 25 days from the notice of claim
    3. For a sub sub-contractor – the surety position must be delivered 15 business days from receipt of the information or 25 days from the notice of claim
  • The surety is also required to pay undisputed amounts within 10 days.

These are just a few of the key changes to the Labour and Material Payment Bond.

When establishing a surety bond facility it is important to clearly understand both the terms of the bonds but also the terms of your contract. Ultimately, while the new construction bond forms provide more certainty, it is still the responsibility of the contractor to review their contracts and determine if the risks within those contracts are acceptable. A good surety broker will have a good sense of the marketplace and what contractual provisions are common. In addition, they will also have a strong network of lawyers than can help assist in draft, reviewing or proposing changes to contracts before you sign them.

With any questions about the Form 31 – Labour and Material Payment Bond please contact FCA Surety.

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