The Newfoundland and Labrador transportation minister’s comments about the use of surety bonds on public projects are “completely preposterous,” according to the president of an industry group.
“Mr. McGrath clearly doesn’t understand surety bonds; nor does he comprehend how they work to protect public construction buyers from serious losses,” Surety Association of Canada president Steve Ness said in a statement.
Ness was reacting to comments made by Transportation Minister Nick McGrath about the Humber Valley Paving contract in Labrador.
On Monday, McGrath defended the government’s decision to cancel a Trans-Labrador Highway contract and release the bonds valued at nearly $20 million.
"I still stand that the decision that we made in the department — to move forward for the benefit of people in Newfoundland and Labrador, to get this contract finished on time and on budget — was the best decision that we could make," McGrath said.
But according to Ness, taxpayers will now be on the hook for any cost escalation that comes with retendering the project, including the costs of retendering. He said those costs are usually picked up by a performance bond.
As for completing the job on time, Ness suggested that any time a contractor needs to be replaced, delays are unavoidable and have nothing to do with the bonding process.
“It simply takes time for a replacement contractor to scope out and price the remaining work and to ramp up their completion team,” Ness said.
The Surety Association did not directly wade into the political debate over the issue, but Ness did note that “the optics are terrible here.”
On the most recent episode of On Point, incoming premier Frank Coleman acknowledged that the decision to let his former paving company out of the contract could have benefited him personally, even though he was no longer involved with Humber Valley Paving.
Coleman said if the province had decided to call in bonds from the company after the contract was cancelled, he, along with the other shareholders, could have ended up paying up to $20 million.
Decision to refer matter to AG supported
Meanwhile, Ness said he supports Premier Tom Marshall’s decision to refer the matter to the province’s auditor general, but remained critical of McGrath’s remarks.
“The minister’s comments about the surety bond process were completely irresponsible and just plain wrong,” Ness said.
The Surety Association of Canada says it acts as a resource for the construction and business communities from coast to coast, with the combined business of its member companies adding up to 94 per cent of all surety premiums written in Canada.
The group’s membership consists of major construction bonding companies — including the one that issued the Humber Valley Paving bond — along with members from the insurance brokerage community, legal fraternity and other industry-related bodies.