July 2016 Authorities often include insurance benchmarking provisions to provide relief in the event that the cost of insurance exceeds a predetermined benchmark Benchmarking provisions highlight the importance of accurately evaluating risk transfer in the market space ID: 564515
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ARTBA P3 ConferenceJuly 2016Slide2
Authorities often include insurance benchmarking provisions to provide relief in the event that the cost of insurance exceeds a pre-determined benchmarkSlide3
Benchmarking provisions highlight the importance of accurately evaluating risk transfer in the market space Slide4
While there are several types of liquid bond forms in the market, all forms take the place of a letter of credit or reduce letter of credit requirementsBond TypeDescriptionPPP BondIncludes both a liquid component and a traditional surety component.The liquid value typically equals between 5%-15% of the total construction value.
Demand
Bond
Stand-alone liquid bond that may or may not be written in conjunction with a traditional performance bond.
The demand bond value typically equates to 5%-15% of the total construction value.
Either/Or Bond
Gives the obligee the option either to fully draw an established liquid amount, or to allow the surety to remedy a principal default through traditional performance bond methods.
If a bond has an established liquidity amount of 15% of a 100% performance bond, and the obligee chooses to fully draw the 15% liquidity amount, then the surety has no obligation to remedy the contractor default and complete construction.
Accelerated Dispute
Resolution
Bond
A performance bond with a contractually determined maximum investigation period. This bond remedies a principal exactly like traditional surety, but it establishes a set period of time for the surety to investigate the claim.Slide5
Innovative surety gains steam in North America over the past 18 months “The project has proposed a new form of performance bond, which we view as providing liquidity equaling as much as 10% credit to the performance bond for contractor replacement.” - S&P’s Presale: Plenary Walsh Keystone Partners LLCAccelerated Dispute Resolution Bond
“Based on the mechanism of the [Either/Or Bond], we are of the view that the on-demand component is similar to a letter of credit and provides liquid security for the DBJV’s obligations.”
- Moody’s Presale: Boreal Health Partnership
Either/Or Bond
Bond Type
Project Type
Delivery Model
Approximate
Construction
Value $ (m)
Location
PPP
Bond
City
Center
DBF
60
New Brunswick
Compost
Center
DBOM
115
Alberta
Hospital
BF
190
Ontario
Hospital
BF
160
Ontario
Either/Or
Bond
Hospital
DBFM
540
North West Territory
School
DBFM
200
Saskatchewan
Accelerated
Dispute Resolution Bond
Bridge Infrastructure
DBFOM
1,120
Pennsylvania