A construction bond (contract bond) is a legal agreement in which the surety company guarantees that a contractor will perform obligations according to the established terms of a construction contract.
In the event the hired contractor fails at completing a job (defaults), does not complete the project in time, or does not to deliver up to specifications that were agreed before the construction contract started, the construction bonds posted by the contractor can be cashed (claim is made on the construction bond) by the hiring party to financially compensate themselves for the losses they incur.
In the Canadian construction space, construction bonds are often also referred to as:
- Contractor bond
- Construction surety bond
- Construction completion bond
So, have you been asked to post a construction bond for a job? We provide construction bonds for companies across Canada.
First thing, there are 3 bonding terms you should to know:
- Surety – This is the bonding company that provides the surety bond.
- Obligee – This is who the surety company guarantees to pay out if the contractor defaults on the job and a claim is made.
- Principal – You, the contractor.
Here are how construction bonds work, simply put
- Step 1: You bid on a job by providing your price along with your bid bonds.
- Step 2: Your bid comes low and you get awarded the job. Now you are asked to provide performance bonds and labour and material bonds.
- Step 3: Surety bond company provides you the required construction bonds and your private or public projects begin.
Our contractors construction bond program offers:
- Bids bonds, 5% or 10%
- Performance bonds, 50% or 100%
- Labour & material bonds
- Maintenance bonds
- Consents of surety
- Agreements to bond and all other standard and non-standard
- Prequalification letters
Here is how the cost of construction bonds is calculated:
- Bid bonds (usually 10%) – free
- Performance bonds (100% or 50%) – 0.7% to 1% of your bid price.
- Labour and material bond (100% or 50%) – 0.3% to 0.5% of your bid price.
How you qualify your company for bonds
Surety looks at what’s known as the three C’s of Credit when looking at construction bond facility applications of companies that want to post construction bonds:
- Capital: Do you as the contractor have the cash flow, net worth, or are worth enough to financially support the project you require a construction bond for?
- Capacity: Do you have as the contractor have enough financial and human strength to finish the project – Even in the case of delays or unexpected circumstances.
- Character: Does your past and previous work reflect the potential outcome of your new construction project? Who can vouch for you or your work!
Frequently asked questions by contractors looking to get bonds for the first time
Q – What types of contractors are accepted into your construction bond program?
A – Contractors, subs, builders, developers of all types.
Q – What types of bonded contracts are unwritten in the program?
A – Any type of bond.
Q – What about Asbestos, Environmental, recycling, waste removal and High-tech?
A – Yes.
Q – What size of jobs can I bid on?
A – Our small contractors construction bond program allows you to bid on private and public projects up to $500,000. We can support bonded contracts up to $500 million in size.
Q – What is the cost for construction bonds not mentioned above?
A – Agreements to Bond and Pre-qualification Letters are free of charge.
Q – Is there coverage for the warranty period?
A – Yes, one-year warranty/maintenance period with option to select a 2 year period.
Q – What if my company does jobs across Canada?
A – Our bonding facility program allows you to bid in any province.
Q – What if my projects are mainly subcontracted?
A – We can help.
Types of construction bonds we offer:
- Bid Bonds – Financial Security for Contract Bidding.
- Performance Bonds – Guarantee of work being completed.
- Maintenance Bonds – Provides protection for a lengthier period of time.
- Payment Bonds – Provides protection for payment workers.
- Subdivision Bonds – A bond used for subdivision development.
- Site Improvement Bonds – Making improvements to an existing project.
- Labour And Material Bonds – Helps cover Labour and Materials Cost.
- Surety’s Consent or Agreement to Bond – Agreement with the Bond Issuer.
- Construction Lien Bonds – They help get the project rolling again by unburdening financial pressures.
Got a tender coming up? Here are some bid bond resources for you:
- How much do bid bonds cost? – Free. You pay for bonds after you win the job. Usually 1% of the project value.
- How do I qualify my company to be able to bid on jobs ? – Surety company will want to see financials, past job experience, bid details, & other factors.
- What is the purpose of a bid bond? – Instead of putting up your own cash or assets collateral, you post a construction bond instead.
- What is the turn around times for getting a construction bond for my upcoming bid? – As fast as 24 hours if underwriting goes smooth and all documents required are present.
- How do I apply for a bid bond? – You can contact us.
Been awarded the job? Performance bond resources for you:
- How much do performance bonds cost? – 1% of the project value.
- How do I qualify for performance bonds? – We will need to review your company’s financials, past job experience, and details of the job(s) you will be bidding on.
- What is the purpose of performance bonds? – To provide a financial guarantee to the party hiring you that you will finish the job upon agreed terms.
- What is the turn around time for me to get a performance bond? – Within 24 hours of you getting awarded the job.
- How do I apply for performance bonds? – Please contact us.
If you would like to learn more about construction bonds in general and how they can be beneficial for your business, we recommend checking out the FAQ page where you can find articles on topics such as applying for a construction bonds surety facility, how claims are paid out, what happens if a contractor fails to complete a job they posted construction bonds for, and much more.
Get in touch with one of our surety bond experts if you are looking to get a construction bond! If need be, we custom tailor the terms of each bond to fit to the client construction project requirements. Our in-house infrastructure allows us to provide construction bonds at the fastest speeds along with the most competitive prices. To educate yourself further, go here to read more on Contractor bonds from the government of Canada.