Imperial Surety vs. Metric Surety: Measuring the Differences in U.S. and Canadian Surety Claims

Navigating claims on construction contract performance and payment bonds in the United States and Canada involves attention to critical terminology differences, procedural nuances and jurisdiction-specific practices. Claims professionals working across jurisdictions must be well versed in the distinctions to understand bond claim differences and address risk accordingly.

In this article, we convert the jurisdiction equivalencies of:

• Key Terminology
• Bond Values
• Bond Forms
• General Contracting
• Contracting Licensing
• Prompt Payment Legislation
• Response Timelines
• Dispute Resolution
• Tax Complexities
• Receivership and Insolvency
• Payment (Labour Material Bond) Claim Timelines
• Indigenous Land Project Locations
• Power of Attorney
• Privacy Regulations

Key Terminology Comparison

Various terms hold similar meanings depending on the jurisdiction of the bond. The following table provides examples as to how references and terms change depending on the region.

Procedural Considerations for Cross-Border Surety Professionals

Typical Bond Values

In the United States, performance and payment bonds are commonly issued each at 100% of the contract value, ensuring comprehensive financial protection that is equivalent in combination to 200% of a project’s total cost. In contrast, Canadian surety practice typically involves setting performance and labour and material payment bonds at 50% of the contract value to combine to cover 100% coverage of project cost. This lower percentage reflects market norms and historical practices within Canada, providing partial coverage intended to manage project risk rather than offset financial risk entirely.

Typical Canadian Bond Forms

Several bond forms are routinely encountered in Canada, including:

• CCDC 2002 and the new CCDC 2024 bonds
• Surety Association of Canada (SAC) bonds
• Ontario Forms 31 and 32
• Municipality-specific forms

Claims professionals should familiarize themselves with bond-specific terms, as conditions can significantly affect claim validity and processes.

General Contracting versus Construction Management

General contracting practices in the United States typically resemble construction management roles in Canada. In the U.S., general contractors commonly oversee subcontractors without directly performing specific trade scopes on a project. Conversely, Canadian general contractors frequently self-perform at least one significant scope, such as mechanical, structural or carpentry, while subcontracting other trades. Therefore, the U.S. model of general contracting aligns more closely with what Canadians categorize as construction management, emphasizing oversight and subcontractor coordination rather than direct self-performance of construction tasks.

Contractors Licenses

Unlike the U.S., Canada does not impose strict general contractor licensing at the national or provincial level, instead relying on market-driven accountability, trade certification, municipal building permits, trade site inspections, liability insurance, and contract law to regulate construction quality. While specialized trades are subject to licensing, general contractors operate without a centralized licensing system in most provinces.

This approach reduces bureaucratic barriers, lowers costs, and allows experienced contractors to work without excessive regulatory hurdles. Quebec stands as an exception with its RBQ licensing system, but other provinces prefer enforcement through contracts and inspections rather than licensing boards.

The contrasting Canadian approach to licensing prioritizes post-construction inspections to ensure compliance, whereas the American system emphasizes pre-construction regulation through contractors licensing requirements.

Prompt Payment Legislation

Prompt Payment legislation, recently enacted in several Canadian provinces, significantly affects claims processes. This legislation mandates specific timelines for invoice approval and payment, often requiring payments within 28 days following the submission of valid Progress Invoices (aka monthly invoices). While new and varying slightly by province, Prompt Payment significantly influences the management and timing of surety claims in Canada. Failure to adhere to these timelines can trigger claims under Payment Bonds (Labour & Material Bonds).

The US market is not unfamiliar with these types of provisions, having the Federal Prompt Payment Act for government projects citing a 30-day payment procedure and seven days to pay subcontractors. Each state has varying mandates for prompt payment regarding timelines and penalties.

Surety Response Timelines

Surety response times differ significantly between the U.S. and Canada, affecting how claims are handled. In the United States, no federal law mandates specific surety investigation timelines, and responses typically follow industry standards and contractual obligations. However, in Canada, some provinces enforce legislated response times, most notably Ontario’s Form 32 bond, which requires the surety to issue a decision within a strict investigation period. While other Canadian provinces do not have statutory surety response deadlines, obligees often expect faster resolutions due to evolving Prompt Payment legislation.

Dispute Resolution

Alternative Dispute Resolution (ADR) plays a different role in surety claims management in the U.S. and Canada. In the United States, litigation remains a common path for resolving disputes, although mediation and arbitration clauses may be included in construction contracts. In Canada, provincial construction laws increasingly encourage ADR, with some bond forms, such as CCDC 2024 bonds, explicitly requiring mediation or arbitration before litigation. Certain provinces, including Ontario, Alberta and British Columbia, have legislative frameworks that favor ADR to expedite dispute resolution and reduce court involvement.

Tax Complexities

Navigating taxation within Canadian construction claims can be complex. Canada employs Goods and Services Tax (GST) federally at 5%, Provincial Sales Tax (PST) in select provinces (ranging from 5% to upwards of 10%), and Harmonized Sales Tax (HST), which combines GST and PST, varying by province. Claims professionals must carefully consider:

• Goods and Services Tax (GST – National): Usually 5%, but certain construction materials or rentals may be exempt.
• Provincial Sales Tax Variations (PST Provincial): Additional to GST, PST rates vary significantly across provinces (5% to 10%).
• Harmonized Sales Tax (HST Provincial): The combination of GST and PST in provinces that choose to calculate and remit sales taxes as one tax.
• Penal Sum & Taxes: It is critical to know whether the bond penal sum includes taxes. The surety is typically responsible only up to the bond penal sum as a hard ceiling. Taxes beyond this amount become the obligee’s responsibility.

Accurate understanding of these nuances ensures proper reserve management and precise forecasting.

Receivership and Insolvency

In the event of contractor insolvency in Canada, claims management becomes uniquely challenging. Receivers often assert rights to remaining contract funds, requiring sureties to not only substantiate claims that the cost to complete projects exceeds remaining funds; receivers may also choose to freeze construction sites until financial information proving a lack of outstanding receivables is presented. This scenario involves detailed forensic cost analyses, can delay resolution significantly and can affect a wide array of stakeholders who are outside of the traditional claims net.

Additionally, claims professionals must consider material ownership complexities, as sureties could be mandated to repurchase the principal’s materials from the receiver with the surety being required to claim payment back to the receivership proceedings as either a secured or unsecured creditor loss.

Labour and Material Bond Timelines

Canadian Labour & Material Bonds often contain a strict notice requirement for claimants—commonly 120 days after the last provision of labor or materials. While some sureties may grant a limited grace period, timely claimant notifications are essential for valid claims. Awareness and adherence to this standard timeline minimizes claim denial risks.

The Miller Act and Little Miller Acts at state levels establish strict notice periods similar to the timeline provisions north of the border. The Miller Act prescribes the overall timeline of one-year, while many state acts shorten this notice period to more strict 30 to 120 days.

Special Considerations for Indigenous Land Project Locations

When working on projects on First Nations or Indigenous lands, claims professionals must recognize jurisdictional differences and research local regulations that affect claims, lien rights, tax changes and general contract administration. It is also worth noting that there are specific regional differences of terminology that are important to claims handling. This can vary significantly depending on the jurisdiction.

American Power of Attorney vs. Canadian Power of Attorney

Surety companies grant Power of Attorney (POA) to authorized representatives, allowing them to execute bonds on behalf of the surety without direct approval for every issuance. This delegation streamlines the process and assists timely issuance of bonds. While the fundamental concept is the same in both countries, Canadian sureties often impose stricter internal controls on limits regarding bond size and underwriting requirements. In contrast, U.S. sureties often provide broad POA authority to agents and brokers partly driven by the differing regulatory environments.

Privacy Regulation Considerations

Privacy regulations differ significantly between the U.S. and Canada. The U.S. follows a sector-specific and state-driven approach, with varying laws such as the Gramm-Leach-Bliley Act (GLBA) for financial data and California Consumer Privacy Act (CCPA) for personal data, creating a fragmented compliance landscape.

In contrast, Canada enforces nationally standardized privacy laws, primarily through PIPEDA, with additional provincial regulations in some cases, such as Quebec’s Bill 64. The differences affect data sharing, financial information access and breach notification requirements, making Canadian privacy laws significantly more stringent. Ensuring compliance when handling sensitive claim-related information across jurisdictions becomes even more integral in Canada.

Recommendations for Efficient Translation of Claims Management

• Prompt Document Collection: Gather key documentation early (performance bond, contracts, progress invoices, etc.).
• Communication and Clarity: Maintain clear, consistent communication across all parties, especially regarding project status, defaults and notices.
• Tax Awareness: Clarify tax implications at claim outset to prevent penal sum misunderstandings.
• Receiver Situations: Proactively manage engagements with receivers, including meticulously documenting cost-to-complete assessments.
• Professional Collaboration: Encourage transparent dialogue among parties to facilitate swift claim resolution and maintain project momentum.
• Potential Claim Nuances to Review:
  • Delayed claim notifications to sureties
  • Failure to adhere strictly to Prompt Payment legislation
  • Overlooking tax considerations or assuming universal tax application
  • Disregarding provincial or local legislative differences in documentation and payment terms

Legal Considerations

Cross-border claims management often requires jurisdictional licensing and other regulatory considerations. While this overview provides essential insights, each case involves unique factors. Parties involved in claims scenarios should retain independent legal and financial counsel to ensure case-specific counsel.

Thorough understanding of terminology, procedures and regulatory variations must be understood to translate best practices in these jurisdictions. By maintaining awareness and following structured approaches, professionals can adeptly manage and expedite cross-border surety bond claims. For further inquiries or clarification on cross-border surety claims management standards, please contact Connor Chow AIA, MRAIC, P.GSC, P.TECH, PMP, LEED AP BD+C, NCARB, Director & Registered Architect, or submit an inquiry, or call 888.298.5162.