Canada: Performance Bonds: The New Form 32 Under Section 85.1 Of The Ontario Construction Act

Last Updated: July 10 2019
Article by Ahsan Mirza and Graham Bevans

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").


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 the Ministry of the Attorney General of Ontario in close consultation with the Surety Association of Canada and other industry stakeholders. It is intended to be a complete, detailed code of conduct governing the relationship between the surety, the owner, and the contractor, and is designed to address some of the deficiencies of the very short and potentially ambiguous CCDC Form.

Form 32 is significantly longer and more detailed as compared to the CCDC Form. Unlike the CCDC Form, which is a 1 page document, Form 32 (in blank form, together with Schedules and Appendices) is 12 pages long. It sets out a detailed claims regime addressing, among other things: specific parameters for written notice (including various prescribed forms), a mandatory pre-notice meeting and post-notice conference, specific timelines for the surety's investigation and response, a regime for necessary interim work and mitigation work, specifics regarding the owner's direct expenses to be paid by the surety, and a detailed checklist of documents that must be delivered to the surety when a claim is made.

Mandated Timelines

A key new feature of Form 32 is that it introduces mandatory timelines for notice, investigation, and response following an alleged default. The CCDC Form does not mandate such timelines, instead relying on the reasonableness of the parties. Under the new Form 32, after receipt of a demand under the bond from the owner in the form of Schedule A to Form 32, the Surety must, within four business days, deliver to the owner an acknowledgement in the form set out at Schedule B. Furthermore, within twenty business days, the Surety must deliver a complete written response to the demand, based on its investigations and review, in the form of Schedule C. The surety must also propose a "Post-Notice Conference" within five business days or such longer period as may be agreed.

Other Differences between the CCDC Form and Form 32

An apparently minor but consequential difference between Form 32 and the CCDC Form is the definition of "Contract" in the preamble. Form 32 incorporates not only the underlying contract but also "amendments made in accordance with its terms". This language is not effectual on its own but where the underlying contract includes terms allowing minor variances and amendments, this more incorporative language may offer better protection against a surety who claims to having been discharged due to a variation in the contract without their consent.

As noted above, article 1 of Form 32 imposes an express notice requirement and details the necessary procedure for declaring a principal in default. While notice to the surety was always a functional requirement due to the need to declare the principal in default, this new term makes this requirement express and adds procedural clarity. Section 1.2 also establishes a procedure for notice in cases with multiple sureties.

Article 2, which requires a "Pre-Notice Meeting", and article 5, which requires a "Post-Notice Conference", provide the parties with a mandatory regime for meetings and communications both before and after the declaration of default. This appears to codify, and reinforce, the common recommendation that the bond parties communicate openly and often in respect of the bonded work and any potential issues.

Article 3 imposes an express obligation on the surety to investigate a declared default and sets a timeline for their response to the obligee's notice. This codifies the surety's common law right to investigate defaults prior to responding to a claim but notably circumscribes that right by imposing a time limit on any investigations and establishing requirements for the response.

Article 4 and sections 5.2 to 5.7 of Form 32 allow the obligee/owner to unilaterally undertake certain work during the claim process. Article 4 creates the concept of "Necessary Interim Work" that an owner may undertake to ensure people's safety, protect the work from deteriorating, or to comply with applicable laws. Sections 5.2 to 5.7 create the concept of "Mitigation Work", which is work that an owner has assessed must be done to mitigate recoverable costs under the bond. These provisions address certain points of the common law related to performance bonds. Most notably, they provide contractual protections for obligees from claims that work subsequent to a default has materially prejudiced the surety in some way, thus discharging them. This is clear from sections 4.3 and 5.7, which prohibit the surety from raising the fact that the work was done as a defence to an owner's claims.

There are also noticeable differences between the two bonds when it comes to a surety's traditional options once it has accepted liability. Article 6 of Form 32 modifies the surety's traditional third option – obtaining bids for completion contracts – to reduce the surety's scope of liability under the bond. The CCDC Form requires the surety to cover both the costs of completing the principal's obligations but also an obligee's expenses that are incurred as a direct result of the principal's default in performance of the underlying contract. This latter obligation to pay non-"bricks-and-mortar" damages is excluded in Form 32. Instead, Form 32 only adds in section 6.1(c)(ii) that the cost of completion includes applicable value-added taxes. This concept is further reinforced in article 7 as well.

Article 7 of Form 32 limits the surety's liability to certain kinds of damages and expressly excludes liquidated, indirect, or consequential damages and damages due to delay or non-performance. This provision seems designed to contract out of the broad interpretation of sureties' liabilities adopted by the Ontario Court of Appeal in Whitby Landmark Developments Inc. v. Mollenhauer Construction Ltd.10 in favour of the restrictive approach adopted by the Saskatchewan Court of Appeal in Lac La Ronge Indian Band v. Dallas Contracting Ltd.11

Form 32 also more formally and explicitly sets out the conditions precedent to claiming under the bond. Specifically, section 8.1(d) adds a requirement that the obligee must agree to pay the balance of the contract price to the surety. This is noteworthy because whether or not payment of the balance of the contract price was a condition precedent before the surety honoured the bond was not clear in the CCDC Form and had been the subject of some commentary and discussion in the past.

Another important difference between the two bonds is the limitation on surety's liability in article 10 of Form 32. This article adds a general limitation on the surety's liability applicable both to the principal's breach of the underlying contract and the surety's breach of the bond itself. This is a departure from the CCDC Form which provides a face amount for only the bonded obligations. The face amount represents the liability of the surety in the normal course but does not cap the surety's liability for breach of contract, negligence, or other claims. The new limit of liability appears intended to contract out of the case law that has held that, without such a term, the surety can face liability greater than the face amount of the bond for its own breach of a bond's terms.

The new Form 32 bond also includes a number of other changes that are less specific to the law of performance bonds but which generally appear to modernize the bond contract and clarify how it should be used. Such changes include common contractual terms such as the addition of choice of forum and choice of law clauses as well as the inclusion of prescribed forms of the obligee's required notice, the surety's required acknowledgement, and the surety's required statement of its position on a declaration of default, which are discussed above.

Taken altogether, the changes contained in Form 32 represent a significant step forward compared with the CCDC Form and other forms of performance bond. These changes not only clarify the parties' obligations and rights but also provide them with a detailed process for performing the bond contract. As a result, one may expect claims to proceed more predictably and efficiently under the new form of bond. Indeed, while Form 32 is only applicable to a limited range of public projects, its terms may provide a useful precedent for lenders, builders, and owners to use with other construction projects as well.


[1] Canadian Construction Documents Committee, "Performance Bond Form 221-2002" (CCDC, 2002) (standard surety performance bond form guaranteeing performance of the contract by the contractor).

[2] Ontario, "Form 32 – Performance Bond under Section 85.1 of the Act" (2018).

[3] Construction Act, RSO 1990, c C.30, s 85.1 [Construction Act]; General, O Reg 304/18, s 12 [General].

[4] Construction Act, supra note 3, ss 85.1(1), 85.1(3)

[5] Ibid, s 1.1(4).1.

[6] General, supra note 3, s 3.

[7] Construction Act, supra note 3, s 87.3.

[8] Ibid, s 1(4).

[9] Ontario, Infrastructure and Lands Corporation, Procurement Policy (June 1, 2018), s 4.5.

[10] Whitby Landmark Developments Inc v Mollenhauer Construction Ltd, 67 OR (3d) 628, 2003 CanLII 50085 (CA).

[11] Lac La Ronge Indian Band v Dallas Contracting Ltd, 2004 SKCA 109, 35 CLR (3d) 236.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2019

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions