Origin Invest will typically recognize greater levels of support to surety products that provide a more
stream- lined claims-paying process or access to liquidity in a timely, demand-like fashion. However,
performance bonds are viewed by Origin as less liquid than LCs, as amounts and timeliness of payment
are less certain. A labour and materials bond may also be part of a project enhancement package and
commits the surety to making unpaid suppliers and subtrades current upon a default of the EPC
contractor. Labour and materials bonds serve as a complement to, rather than a substitute for,
performance bonds, as claims under both instruments for the same event are typically not permitted.
Labour and materials bonds are not present in all projects and Origin will not usually make an
acceptance distinction if they are absent from a well-structured project.
to local trades. These policies typically have larger deductibles and may also have a co-pay provision
whereby the EPC contractor is required to prefund the first portion of any award. Subcontractors are
prequalified, which streamlines the claims-payment process, and given the first dollars received have been
prefunded by the EPC contractor, subcontractor default insurance is understood to be more liquid and
timely than a surety product. To recognize the incremental value provided by subcontractor default insur-
ance and performance bonds together, Origin will generally uplift the construction period rating for low-
to moderate-complexity projects. The policy must include appropriate financial interest endorsements
to ensure it would survive insolvency of the EPC contractor/guarantor.
degree of uplift these provide to the rating during construction, Origin will examine the credit quality of
the entity underwriting the performance support, the speed at which claims are historically settled and
the liquidity of the particular instrument. Enhancements are analyzed in relation to the complexity of the
project and the credit quality of the EPC contractor, and are expected to be assignable to bondholders. For
a low- to moderate-complexity project, Origin will limit the maximum risk rating uplift achievable
through construction support (for a contractor that has the size and expertise appropriate for the
project), provided that the contractor replacement mechanism allows for timely replacement.
may signal a potential flaw in the project or incomplete preparation by the project team.
and a logical critical path that supports commissioning by the target substantial completion date. In
addition to adequate levels of contingency, the construction schedule should be based on a standard
work week, without the expectation of material overtime. Otherwise, the project may have less flexibility
to catch up should it fall behind schedule. Origin notes that some projects may have long construction
periods across multiple sites with staggered delivery dates for particular facilities. Sections of the project
may begin operating prior to full completion of the project. In such cases, Origin reviews each stage of
construction to ensure that the presence of several phases running in parallel does not materially increase
the complexity or risk of the project. Off-take contracts often have in-service `drop-dead' or `long-stop'
dates. Failure to meet contracted in-service dates can cause legal disputes between the project and the
EPC contractor and trigger penalty payments to the off-taker. As the complexity of a project increases,
so too does the importance of a comprehensive change orders process and dispute resolution mechanism.
Dispute resolution, in particular, needs to be comprehensive, efficient, fair and timely.