Essentially, an EDR bond is held out as a replacement for performance bonding on large, complex projects. Breaking down the acronym should help give some insight into the point of an EDR bond. EDR stands for “Expedited Dispute Resolution”.
Where Did the EDR Bond Come From?
Under the program, the Pennsylvania Department of Transportation (“PennDOT”) partnered with a private company to replace more than 550 bridges in the state over a 3 year period. After the replacement, the private company will be bound to perform maintenance on the newly replaced bridges for the next 25 years. By using an alternative project delivery method, PennDOT is spending about 20% less than a similar traditional project might cost.
P3 projects can cause a flurry of issues when trying to secure payment. Some states require bonding for P3s under their Little Miller Acts, while other states don’t. But for a project as massive as this one in Pennsylvania, a different bonding approach needed to be taken. That’s why Travelers created the EDR bond to provide protection on this massive, long term public-private partnership.
Construction Bond Resources from Levelset
- The Miller Act for Federal Construction Projects
- Learn about each individual state’s Little Miller Act
- Calculate notice and claim deadlines for public jobs
What Does an EDR Bond Do?
As mentioned above, an EDR Bond serves as an alternative for payment and performance bonding. The EDR Bond both provides protection for the party initiating the project and for the subs and suppliers down-the-chain from a contractor. However, it’s important to remember that whether an EDR Bond could be used in place of more traditional bonding on a public project would depend on a given state’s Little Miller Act. But if traditional bonding works (and it often does), why create an EDR Bond?
The primary benefit of an EDR Bond is spelled out in its name — that is, disputes are put in the fast lane (or “expedited”).
EDR Bonds, unlike traditional bonds, create a very structured and predictable claim schedule, both for the performance aspect and the payment aspect of bond claims. Whether an owner (or public entity) is making a claim on a performance bond or a subcontractor (or supplier) is making a claim on a payment bond, the surety will typically want to investigate any claim made. While the timeframe for making a bond claim is often heavily regulated, the surety’s timeframe for responding to that claim can drag on if the surety takes too long to investigate or if the surety disputes the claim.
When utilizing an EDR Bond instead, the claims process is sped up significantly. According to Construction Executive, a surety providing an EDR Bond will have 15 days to investigate. If the surety wants to dispute the claim, a 45 day mini-trial will take place. Ultimately, as a result of that mini-trial, an arbitrator will make a binding determination (I knew “EDR” sounded like ADR). The decision may be appealed, but in the meantime, the surety will be bound to pay a claim if required by the arbitrator.
Further Reading on EDR Bonds
Who Is an EDR Bond For?
It should come as no surprise that EDR Bonds aren’t for everyone. Considering they were literally created to service a single, massive P3 project, that should be a good indicator that large P3’s are a good fit. More specifically, EDR Bonds make a lot of sense when stages of a project are integrated, rather than on traditional design-bid-build projects. Construction Executive also identifies power plants, oil and gas pipeline reconstruction, manufacturing facilities, data centers, high-tech projects, more traditional private projects as good candidates for EDR Bonds, as well.
EDR Bonds Are Brand New
This detail is important: no claims have ever been made against an EDR Bond.
And so, while the above sounds great, and Travelers is a widely respected surety, it’s still unclear whether EDR Bonds would be upheld in court to operate in the way they’re supposed to. That being said, some of the best minds in bonding came together to create this product for a high stakes project, so every precaution was likely taken. Plus, it passed the smell test with Standard & Poor’s as mentioned in this article from the international law firm, Ashurst.
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