Surety Bonding for Canadian Businesses

A Comprehensive Guide Regarding Canadian Surety Bonding

A Surety bond is required when the Obligee (The company, Municipality, or Governing body) requires a financial guarantee that you will complete the job that you have been awarded. The purpose behind this surety bond is to provide the Obligee the financial security in the event you default (do not finish) the job as promised with adequate standard or time frame or both. While many consumers are unaware of it, Canadian companies are forced to jump through a handful of hoops, before they’ll be allowed to begin serving the public or bid on projects in your case. These individuals will need to acquire the appropriate training and licensing. They’ll also need to get the right bonds from a Canadian Surety Company. In the Canadian construction sector, there is a variety of different surety bonds and many of them are requirements for the contractor. If you’re new to construction, you’ll first want to familiarize yourself with Canadian surety bonding.

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Frequently Asked questions regarding surety bonding

What Is A Surety Bond?

As a contractor you will likely come across a situation in which you are going to need to acquire a surety bond. This binding agreement may be required, before the physical work begins. Due to this fact, it is imperative that you understand the inner and outer working of a bond. To start off, a bond is just basically a contract between three parties, a principal, the surety, and the obligee. This is a contract that is put in place to protect the obligee against any financial losses due to contractor incompetency.  

    • The principal is the business or individual that is going to purchase the bond to ensure that work will be completed.
    • The obligee is the person or company that will require the bond to be purchased in the first place.
  • The surety is the company that is going to issue the bond.

Surety Company

A surety could be a company or an individual, so you will have some flexibility, when it comes to shopping for a reputable guarantor. The surety has a long list of responsibilities, with the main one being guaranteeing the public that the applicant is a reliable source. Not everyone that applies for a surety bond will be approved. Many applicants are denied a bond, based on their credit scores, previous claims, and open lawsuits. If you feel like you fall into this category, you should maybe reconsider the route that you are taking to get bonded.

Do not let your low credit scores stand in your way of getting bonded, because there are alternative options for you. The main key is to provide the surety with sufficient information that will prove your case. You may also want to find someone that is willing to co-sign for you, but again this drastic action is not always necessary. Once you find a reliable surety, you will need to either complete and submit the free quote form or associated surety application.


The Most Common Types

Anytime a Canadian contractor wishes to take on a new project, they’ll be required to obtain a bond or two. The first bond they’ll need to obtain is the bid bond. Then, they will need to guarantee their work through the utilization of the performance bond. Below, you will learn more about the most common types of surety bonds for construction contracting.

  • Construction Bonds – Construction bonds are used for companies that are looking to bid on jobs that require the contractor to have surety bonding facility in place. Our rates are the cheapest and and companies are Tier 1. If there is a bond you need, we are always a call away.
    • Bid Bonds – Bid bonds are utilized by contractors, when they need to place a bid on a new project. The bid bond makes a guarantee to the client that the contractor will indeed obtain the other necessary bonds, if they are chosen for the project.
    • Performance Bonds – Performance bonds are used to provide the client with reassurance that the work will get done on time and as agreed upon previously. If the contractor fails to meet or exceed the client’s expectation or cannot complete the project on time, the client will be able to use the bond to take action and try to recover their potential losses.
    • Labor And Material Bonds – These bonds usually work together. Supply or material bonds cover materials used for the construction project, while labor bonds cover physical labor. The bonds ensure that those providing the labor and the materials will be paid the amount initially agreed upon.
  • Maintenance Bond – The maintenance bond is a type of warranty for the client. It protects the work from defects for a duration, which extends past the completion of the construction project.

These are truly the most common types of bonds used in the construction industry. As a contractor, you will become very familiar with each and every one of these bonds over a short period of time. You may not use all of them for each project, but you will eventually encounter each at some point in the future.

A Necessity

Many people seem to believe that surety bonds are optional. In some cases, this is true. However, when it comes to construction contractors, surety bonds are a way of life. Construction contractors will run into a wide variety of situations in which bonds will be a requirement. Bid bonds and performance bonds are almost always required. Without these bonds, a construction company will not be able to get work or get paid for their services. Therefore, you will want to familiarize yourself with these bonds, because you will be working with them repeatedly well into the future.