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AGC’s Surety Bonding & ConstructionRisk Management 2020 Conference
Moderator: Adrian Pellen, Marsh, SVP – Infrastructure Leader US & CanadaPanelists: Barry Normet, Managing Director, Marsh, Central Zone Construction Leader Canada
Kevin Li, Senior Vice President – Infrastructure Finance, DBRS Courtney Walker, Senior Vice President, Berkshire Hathaway Specialty Insurance CompanyCaryn Maxfield, Vice President – Strategic Projects, Walsh Group
January 28, 2020
Performance Security and Infrastructure Development:Why is liquidity king and what to do about it?
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3 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
TOPICS OF DISCUSSIONRise of The Mega Project: Seismic Shifts in Construction – Adrian Pellen, Marsh
A Rating Agency Perspective: Construction Risk & Performance Security– Kevin Li, DBRS
Types & Key Benefits of Alternative Surety Instruments – Barry Normet, Marsh & Caryn Maxfield, Walsh
A Surety’s Perspective – Alternative Surety Instruments – Courtney Walker, BHSI
Panel Discussion
Q&A
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4 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
Seismic Shifts in Construction:The Rise of the Mega Project
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5 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
Seismic Shifts in Construction
Rise of Mega Projects
Productivity Gains / Tech?
The Infrastructure Deficit
Global Competition
Funding Gaps
TraditionalRisk Transfer
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6 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
A Rating Agency Perspective:Construction Risk, Performance Security & Credit Enhancement
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Rating process for the construction phase
• Rate to default (as per the MTI)
• “Building blocks” approach, starting with the credit rating or internal assessment of the general contractor
• Project rating can be enhanced beyond the contractor’s rating; focus on the replaceability of the contractor
• Project resilience or a project’s “survival rate” can be improved by both internal and external sources, including:
o Internal: highly rated contractor, last man standing, conservative budgeting / scheduling, standardized contract and risk profile to entice replacement, ample time allowed to replace, longer long stop date
o External: pre-funded cash, non-recourse LC, surety products
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Notching uplift by different surety products
When assessing the quality and degree of ratings uplift provided by construction enhancements, DBRS considers the size, timeliness and certainty of the package
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Types & Key Benefits of Alternative Surety Instruments
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10 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
Surety Products• Performance Bond• Payment Bond• On Demand Bond*• Combination Performance/Liquid
Bond *• Expedited Dispute Resolution
Bond*Not issued in the US to date
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• Job Completion• Subcontractor/Supplier Payment• Subcontractor Ratification &
Warranty
Traditional Bond Benefits
Alternative Product Benefits• Liquidity• Expedited Dispute Resolution
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A Surety’s Perspective –Alternative Surety
Instruments
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13 AGC’s SURETY BONDING & CONSTRUCTION RISK MANAGEMENT 2020 CONFERENCE
Surety Points to Ponder:
• Job Completion Impact for different Surety Instruments
• Payment Impact for different Surety Instruments
• Dispute Resolution• Liquidity and Balance Sheets
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Mega Projects: Surety Considerations
• Competition • Transfer of Risk• Capacity
• Project Delivery Requirements• Project Duration• Timely Dispute Resolution• Liquidated Damages
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Panel Discussion
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Q&A