Bonding that helps contractors qualify for the work.
Not insurance in the usual sense. Bid, performance and other contract bonds that help you meet project requirements and pursue larger work.
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WHAT IT DOES
A three-party guarantee, not a two-party policy.
An insurance policy is between you and an insurer. A bond involves three: you, the obligee who requires it, and the surety — which normally expects reimbursement from you if it pays.
01
A bid requires a Bid Bond before you can submit
02
A contract requires Performance and Payment bonds before work starts
03
A municipality requires a bond before issuing a contract
04
You need bonding capacity to pursue larger projects
Whether a bond is available, and on what terms, depends on the surety’s assessment of the contractor and the project.
WHAT IT MAY INCLUDE
The bond types a contractor is most often asked for.
Bid Bonds
Support a tender submission, indicating the contractor would enter the contract if awarded.
Performance Bonds
Guarantee performance of the contract to the obligee, up to the penal sum of the bond.
Labour and Material Payment Bonds
Provide recourse for certain unpaid subcontractors and suppliers on the project.
Maintenance Bonds
Cover an agreed warranty or maintenance period after the work is complete.
Agreement to Bond
A surety’s indication that final bonds are expected to be available if the contract is awarded.
Other Contract Bonds
Licence, permit and municipal bonds, where the obligee and the surety market allow.
Availability, penal sums and wording are set case by case. A broker working with a surety can confirm what is realistic before you tender.
WHAT IT ISN’T
A bond is a guarantee to someone else, not protection for you.
This is the distinction most often misunderstood. If a surety pays under a bond, the contractor normally remains responsible to the surety under an indemnity agreement.
Insurance for third-party injury and property damage claims, where the protection is yours.
Insurance for physical loss to the project during construction.
Insurance for your own building, equipment and contents.
Financial Guarantee Insurance
A different product entirely, and not what a contract bond is.
Credit Facilities
Bonding capacity is assessed alongside your banking, but a bond is not a line of credit.
Your Own Indemnity
Bonds are normally supported by a general indemnity agreement, so the contractor remains financially responsible to the surety.
These are general distinctions, not a statement of what any bond does. A broker can walk through the indemnity obligations with you.
WHO COMMONLY NEEDS IT
The businesses that most often need bonding.
Contractors bidding work where the owner requires a guarantee. These are the HIFA industry pages where it comes up most often.
NOT SURE WHERE YOU FIT?
A broker can tell you what a surety will say yes to.
Tell us what you are bidding and what the contract requires. A broker working with a surety can review your capacity before you commit to a tender.
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HOW A BOND MAY BE CALLED
Two situations worth understanding before you sign.
Performance Default
A contractor is unable to complete its obligations under a bonded contract and the owner looks to the bond.
Where a default is established under the bond’s terms, the surety may arrange completion or respond up to the penal sum. The contractor normally remains responsible to the surety under the indemnity agreement for amounts the surety pays.
Unpaid Subcontractor
A subcontractor or supplier on a bonded project is not paid and makes a claim under the labour and material payment bond.
A payment bond may provide recourse to certain unpaid subcontractors and suppliers, subject to the bond’s terms, notice requirements and time limits. Again, the contractor normally indemnifies the surety.
Illustrative example
Illustrative only. These are not a statement of what any bond does. Every bond is assessed on its own terms and on the facts of the contract.
WHAT AFFECTS COST AND CAPACITY
What a surety actually assesses.
Two contractors of similar size can be offered very different capacity. These are the inputs a surety weighs.
THE COMPANY
Financial statements and how they are prepared
Working capital
Net worth
Ownership credit and personal indemnity
Prior bond history
THE WORK
Experience with this type of project
Single project size
Current backlog
Profitability and margin history
The contract and the obligee
Bonding is underwritten on capacity, not just price. A broker can tell you what a surety wants to see, and what would raise your limit.
WHAT WE’LL ASK YOU
The questions that change the bond.
01
What bond is required, and by when?
02
What is the contract value?
03
Who is the obligee?
04
What is your current backlog?
05
What financial statements are available, and how are they prepared?
06
What is the largest similar project you have completed?
Common questions
What owners ask about surety bonds.
Is a surety bond the same as insurance?
What is an indemnity agreement?
How do I get a bonding facility?
Can new contractors get bonded?
What is a bid bond?
How much bonding capacity will a surety give us?
READY TO TALK?
Let’s find out what capacity you can realistically support.
Tell us what you are bidding, what the contract requires and what your statements look like. A broker working with a surety can review it before you commit to a tender.
Want to talk now?