Digital Surety Bonds: Top Three Facts
Prior to the onset of the COVID-19 pandemic many project owners in Canada had been working to digitize their tendering process. Part of this process included consideration of digital submission of bid bonds, performance bonds and labour and material payment bonds. In many ways, over the past 15 years, the surety industry has lagged behind the wider financial services industry in adopting electronic and digital solutions for construction bonds.
However, that process has begun to change with many project owners adopting digital bonds. The constraints of the pandemic in terms of travel and mail delivery timelines have only served to quicken the adoption process. Below are three key facts to remember as you look to tender projects using digital bonds.
1) Providers – there are a wide range of e-bond providers in the current marketplace. Your bond broker should have access to all and be easily able to explain the cost structure and benefits of each platform. In fact, there is even one bond company that offers free digital bonds through a platform they have developed at no cost for their clients. Ensuring that the provider is widely accepted by project owners and the Surety Association of Canada is critical.
2) Digital Seal – to provide digital bonds you need a digital seal. Your bond broker should be able advise you where you can procure a digital seal. A strong bond broker can even help create your digital seal for you at no additional cost.
3) Verifiable – some contractors have had their digital bonds rejected by owners because the bonds were not verifiable. The digital bond process includes programming within your digital bond to allow owners to verify it is a valid and unaltered legal document. If the contractor amends the bond in any way it can make the bond un-verifiable. Your bond broker should be able to explain the process for receiving, executing and submitting the digital bond. This will ensure that you do not inadvertently lose out on any opportunities.
It should be noted that with the pandemic the shift to e-bonding has accelerated. Some municipalities have agreed to accept scanned copies of bonds. These are not e-bonds as there is no way to effectively determine whether or not they are a legal, unaltered document issued by a surety company.
The Surety Association of Canada has been working with owners to educate them on the risks accepting contract surety bonds in the form of a PDF copy. The concern is that this could open them up to potential fraud in the bidding process. To ensure the tendering process is fair and equitable, owners should be either requesting original sign paper bonds or digital bonds provided through a vetted e-bond platform.
If you have any questions on digital bonds, please reach out.