Our Construction Insurance Team

Director of Surety Relations/Marketing:

Drew Adam 780-453-8405

Account Executives:

Randy Singh 780-453-8414

Rick Steenbergen 780-732-9917

Account Manager:

Robert Leddy 780-453-7752

Construction Service Support:

Leila Zdebliak 780-453-0839

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Issue # 2 April 2014 Volume: 1

How to Reduce the Risk of

Contractor Non-Payment Welcome to our Spring installment of our newsletter.

As we move out of what was considered a long winter into

what we hope will be a successful 2014 building season, we

wanted to draw our readers’ attention to something that is

very concerning - the growing issue of contractor non-

payment.

While recently traveling internationally with a number of

successful local contractors, the common topic of discussion

was that of contractor non-payment. One traveler in

particular, a respected fifty year veteran of the construction

industry, commented that he had never seen the issue of

contractor non-payment as bad as it is currently. This is

precarious when you stop and think about how vital

construction is to the health of Canada’s overall economy.

Website: HUB Phoenix

Email: Construction Team

Follow us on:

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On the Web

Account Executives:

Donna French 780-453-8417

Brent Sierpinski 780-453-8426

Karla Nichols 780-453-7757

Account Managers:

Jennifer Badgley 780-732-6883

Shannon Mackelson 780-732-6889

Raumy Mostafa 780-732-8921

Vice President of Construction Services:

Dave Bentley 780-453-8419

Our Surety Team

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2

Issue # 2 April 2014 Volume: 1

Having lived through an era where some notable contractors have defaulted (civil, building, prime

subs), our communities have been forced to absorb these “monetary hits”, and it is sometimes very

difficult to recover. Employees and their families get hurt financially, companies close their doors,

and suppliers take write-downs on their financials. Currently in Ontario, there is a movement afoot to

push Prompt Payment Legislation through their Legislature. It is currently stalled having gone

through its second reading, but those of us around the country are keenly watching these

developments.

Through the ashes of it all, there are some clear processes a company can take to protect itself:

1. Prequalify your clients – do they have clean cash? (private deals often burn GCs and Subs)

2. Read your contract – all of it

3. Know what legal rights you have in your contract (payment, termination, security, etc.)

4. Know what contract security is in place

5. Do not miss important filing dates (schedule, liens and bonds)

6. Seek qualified construction oriented advise (legal, accounting, risk management)

Our Team is 14 members strong with a wealth of experience in the Construction Risk Management

Arena. If you have a specific issue you would like to confidentially discuss, a member of our Team

would gladly come to your place of business for a conversation.

Dave Bentley, B.A., ACSB, CRM

Vice President of Construction Services

How to Reduce the Risk of Contractor Non-Payment

(cont.)

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Issue # 2 April 2014 Volume: 1

What to Watch Out for Inside the Contracts You Sign

(Insurance Specifications)

Here at HUB International Phoenix Insurance Brokers we see many different Agreements that are

signed by Contractors for the variety of projects that they have been awarded. One of the things that

we do as Brokers is to review the Insurance Specifications for each project to ensure that the Contractor

has the coverage that has been agreed to in the Insurance Specifications.

Over the past years, and in particular, more recently, we note the Insurance Specifications in the

Contracts and Agreements that are signed by Contractors on a regular basis are becoming more and

more onerous and require Contractors to provide higher limits of coverage, and more coverage

extensions are indicated in the various Insurance Specifications. At one time, the typical Insurance

Specification would indicate a typical $2 million limit, this has increased to $5 Million being more

standard. We commonly see the Insurance Specifications requiring even higher limits. Another trend

we see is the requirement for more and more coverage extensions under the Commercial General

Liability and the required Property Insurance.

In efforts to reduce costs, we see that Owner / General Contractor Supplied Coverage have much

larger Deductibles than were seen in past years. Upon review of the Insurance Specifications, we see

the responsibility of the large Deductibles is being passed down to each Contractor, Subcontractor and

Sub-Subcontractor by contract and subcontract. Even the standard CCA 1 Subcontract indicates that

the responsibility of the Deductibles are the responsibility of the party at fault, or the party that benefits

from the coverage provided under the agreement.

Does your current Broker review your Insurance Specifications, and point out the specific

requirements for the Projects that you are awarded? HUB International Construction Services takes

pride in the services that we provide to our clients, and we endeavour to ensure that the Insurance

Specifications are met for the Agreements signed by our Contractors.

Donna French Construction Services Account Executive - Insurance

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Issue # 2 April 2014 Volume: 1

Not Getting Paid? Filing a Labour & Material

Payment Bond Claim

As a purveyor of Contract Bonds, we spend a great deal of time analyzing and discussing contractor

financial statements and there seems to be a disturbing and alarmingly growing trend within the

construction industry. Payment to sub-contractors has drastically slowed down or, in some cases, has

stopped altogether. This can be for a variety of reasons, not the least of which is the financial difficulty

or the insolvency of the contractors they are working for. Certainly, this is a serious issue that

jeopardizes the viability of the affected sub-contractor. If there can be a silver lining in this situation,

it’s that they may qualify as a Claimant under a Labour & Material Payment Bond (L&M Bond), if one

has been posted by the contractor with whom they have a direct contract with. Also, in some cases,

contractors further down the construction chain may also qualify as Claimants under that same Bond.

An L&M Bond is issued to protect the sub-contractors and suppliers of the Principal named on the

Bond. Some items to keep in mind:

1) The L&M Bond is not in place to alter the payment terms of the subcontract. It will not

supersede the arrangement for payment contained within the subcontract.

2) The Bond has conditions that must be complied with and timelines that must be adhered to. A

claim must be submitted within 120 days of the last date upon which labour and/or material

was supplied to the project or 120 days after holdback was due, if filing for holdback non-

payment.

3) Claiming under an L&M Bond does not compromise the ability to file a construction lien on the

project, nor does it affect lien rights.

4) You do not need to engage a lawyer when filing a claim under an L&M Bond, although it is

recommended.

If the contractual avenues with respect to getting payment have been exhausted and any mechanism

with respect to dispute resolution contained within the contract has been reviewed, it may be time to

file a claim.

1) Procure a copy of the L&M Bond, if one was posted. As it was provided to the company that

has contracted the contractor who owes you money, a request to this entity is your first step.

Many subcontractors get nervous about this process, not wanting to “rock the boat”. The Bond

has been posted for your benefit and you have every right to it. Good practice is requesting a

copy of the L&M Bond at the outset of the project.

2) Provide written notice to the Bond Company (Surety) who has provided the Bond with your

intent to file a claim under the Bond. In your letter, cite the contractor who you are claiming

against, the project name, your scope of services and the Bond number.

If time and availability permits, you may want to gather documentation substantiating your claim and

submit it at the same time as your written notice. Provision of the following material, early in the

process, can certainly create some time efficiencies within the claims process and it will be required in

due course, regardless:

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Issue # 2 April 2014 Volume: 1

Not Getting Paid? Filing a Labour & Material

Payment Bond Claim (cont.)

If time and availability permits, you may want to gather documentation substantiating your claim and

submit it at the same time as your written notice. Provision of the following material, early in the

process, can certainly create some time efficiencies within the claims process and it will be required in

due course, regardless:

1) Complete copy of your original, signed contract as well as all subsequent change orders

issued altering the scope / conditions of your contract. Ensure to include, but clarify, all

change orders and amounts claimed but not approved in writing by the Principal.

2) Copies of all invoices, progress billings and statements of account submitted to the Principal

on the Bond.

3) Copies of all payments received, including dates received.

4) Copies of Statutory Declarations with respect to your own sub-contractors and suppliers.

5) Copy of the Lien documentation, if one has been filed.

6) Evidence of the last date labour and/or material was supplied to the project.

7) Any other documentation (emails, etc) which you believe will help further substantiate the

validity of your claim.

The information above has been intentionally simplified to provide some basic, easy to understand

information during what can be a trying time for contractors in this position. We welcome any

questions, requests for further information / clarification or requests for help with the process. Feel free

to contact our office at your convenience and we will do everything we can to alleviate any concerns.

Best of luck out there!!

Randy Singh

Construction Services Account Executive - Surety

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Issue # 2 April 2014 Volume: 1

HUB Phoenix Construction News is published by HUB International Phoenix Insurance Brokers Construction Services Team.

10320 – 146 Street Edmonton, Alberta T5N 3A2

HUB International Phoenix Corporate Challenge

Team 2014

GO HUB GO!!! HUB International Phoenix Insurance Brokers is proud to take part in this year’s

Edmonton Corporate Challenge. The Corporate Challenge is 17 days of sports, recreation, teamwork,

spirit, and most of all fun! GO HUB GO!!!

Leila Zdebliak

Construction Services Support/Corporate Challenge Coordinator