What are Bonds?
Surety Bonds (“Bonds”) provide the construction industry with certainty in an inherently risky business. Bonds are financial instruments issued by insurance companies that protect an owner from financial loss in the event a contractor fails to fulfill the obligations contained within their contract. Bonds play an important role in managing risk on construction projects by providing a form of guarantee to owners that the project will be completed. Bonds can also protect a general contractor from their subcontractors defaulting and not finishing their scope of work on a job. Finally, they help contractors to grow and take on new and larger projects.
When are Bonds required?
- 10% Bid Bond – Guarantees the low bidder’s price and that the contractor will enter into the contract should they be awarded the project
- Consent of Surety – Guarantees a contractor is capable of providing final bonds if they are awarded the project
Used in conjunction, the bid and consent provide prequalification assurance to the owner that the bidder is financially capable and that their bond company believes they have the financial wherewithal, experience and ability to complete the work.
- 50% Performance – Guarantees the contractor will follow through with performance of the contract in accordance with the terms and conditions
- 50% Labour & Material Payment – Guarantees the contractor will pay their directly contracted suppliers and subcontractors
Typically used together, performance and labour & material bonds (commonly referred to together as a “50/50 bond”) provide assurance that the work will be performed on schedule, on budget, and that the contractor’s supplier and subcontractors will be paid. Standard Canadian practice is to require these bonds to be in the amount of 50% of the contract value; however, US-based owners and General Contractors may require Bonds valued at 100% of the contract price.
How can APEX Surety & Insurance help?
APEX Surety & Insurance, located in Winnipeg, Manitoba, specializes in strategizing with clients on ways to utilize bonds in order to create competitive advantages over their peers. Whether you are looking to apply for your first bond; want to explore ways to bid on larger and more complex projects; or, are interested in exploring competitive bonding terms and pricing, Apex Surety & Insurance is well equipped to bring real value and help your business take the next step.
Using our relationships with Canada’s leading insurance and bonding markets, we will build a customized, bespoke facility designed to meet your specific needs and requirements and puts you back in the driver’s seat. Our team will continue to work to ensure that your bond facility grows with you and allows your business to take advantage of new opportunities.
Competitive Advantages of Using Bonds
Owners – Increasing construction disputes and litigation cause costly delays, hurt brand image, and increase asset management costs. When used correctly, Bonds play an important role in your overall construction risk management strategy and provide assurances that contractors you hire will complete their work.
General Contractors – Having an ongoing bond facility allows a GC to pursue larger jobs, with increased project backlog allowance, and more competitive pricing. Alternatively, requiring your major sub-contractors to provide bonds for their scope of work can free up your own bond support, allow you to prequalify new or unfamiliar subcontractors, and demonstrate a more sound risk management strategy to the owner and consultant.
Sub-Contractors – bonds can provide your company with a competitive advantage over less qualified sub-contractors, protect your receivables, and increase the competitiveness of your bid.
Most Publicly Funded Owners require surety bonds, including:
- Public Works and Governments Services (PWGSC)
- Defence Construction Canada (DCC)
- Manitoba Waters Services Board (MWSB)
- City of Winnipeg
- Manitoba Infrastructure and Transportation (MIT)
- Manitoba Housing
- Winnipeg Regional Health Authority (WRHA)
- Manitoba Liquor and Lotteries Corporation (MLCC)
Many consultants and engineers will also recommend to their private clients that they should manage their project risk by requiring bonds. Banks and credit unions are increasingly requiring bonds as a condition of financing and they are a requirement of the Canadian Mortgage and Housing Corporation (CMHC) on projects which receive insurance from this federal government body.
How do I make a Bond claim?
Bonds are often not used to their full potential by owners and contractors. They are powerful tools that can assist with having work completed satisfactorily and on time. Making a claim on a bond requires a formal demand to be placed on the contractor and the bond company must be correctly placed on notice.
If you feel that you have rights under a bond you may wish to exercise, contact an Apex Surety & Insurance team member for hands-on, strategic assistance.
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