Passed last October, Bill 62 seeks to modify several aspects of the bidding process associated with public construction tenders in Quebec. The relevance of surety bonds as a risk management tool was discussed and questioned at the National Assembly. Here's what you need to know.
What is contract bonding?
As mentioned in a previous article, contract bonding is a process that guarantees a public-sector client (ministry, municipality, etc.) that a project will be carried out according to the contractual standards established between the client and the principal (contractor). For example, if a selected contractor can no longer meet its contractual obligations to the client, a third party (a surety) will be legally obliged to intervene. A process of intervention (direct, by payment, etc.) can then be initiated when the surety agrees that a clause under the bond(s) issued has not been respected. The surety bond therefore protects the public funds committed to the project in question.
What does Bill 62 change?
Bill 62 reforms elements associated with public tendering in the Quebec construction industry. As its name suggests (an act designed primarily to diversify the procurement strategies of public bodies and give them greater agility in carrying out their infrastructure projects), it will bring about some major transformations. Here's one that directly affects contract bonding:
Among the changes brought about by Bill 62 is the fact that, while contract bonding used to be optional for contracts worth less than $500,000, this threshold has now been raised to $2 million. Nevertheless, a moratorium on this measure was put in place by the Quebec government after representations from key players in the construction sector.
The current political and economic situation is undoubtedly having a major influence in this respect.
Such a context should encourage contractors carrying out public construction contracts to adapt. Tariffs, be they 15%, 20% or other, could greatly reduce their profit margins and possibly jeopardize their survival. As this contentious issue evolves daily, the parties involved need to be vigilant and agile.
Not only do Quebec contractors occasionally have to rely on specialized U.S. subcontractors, but they sometimes must also source materials from the U.S. as well. As a result, some are now ordering large quantities of goods and materials such as steel, to build up reserves in case tariffs rise further.
It is therefore recommended that they include so-called “inflation” or “U.S. tariff” clauses in their contractual agreements, with the aim of minimizing decisions made across the border.
Other options:
- Add an additional contingency when estimating projects involving U.S. suppliers and/or subcontractors.
- Add contractual clauses including price increases in the event of tariffs or inflation.
- Monitor and benchmark projects elsewhere in Canada subject to U.S. tariff increases.
How can contractors avoid getting caught up in disadvantageous contractual agreements?
Lussier's specialists can help construction contractors and other companies participating in public tenders to better understand and adapt to Bill 62. For example, they will analyze specifications and identify elements likely to affect profit margins. They will then suggest the necessary adjustments to the contractor to ensure that his bid is optimal and does not put him at risk.
To benefit from their expertise, contact them here or by phone at 1-855-LUSSIER (587-7437).
