Becoming a bonded contractor can be easy if you choose to work with the right broker. An experienced and knowledgeable surety broker will know the industry and understand your business. They will have a number of surety markets they work closely with and will be able to easily fit you with the right surety company for your business.

Documents commonly required to apply for Construction Bonds:

• Financial Statements for your Company
• A Contractor’s Questionnaire (to be provided by your FCA Advisor)
• Personal Net Worth Statements for the owner(s)
• A copy of your Banking Terms & Conditions Agreement for your Operating Line of Credit (if one is established)
• A Professional Resume for Key Employees (or LinkedIn Profiles)

Surety companies will look at the character of the owners of the business. This includes their past experience, reputation and years in business. It can also include reference checks.

They also look at a contractor’s capacity. This includes their project management team, estimating and internal back office functions and whether these are adequate for the work they intend to target.

Lastly, they will look at a contractor’s capital. This often includes review of corporate financial statements and personal financial statements of the owners. A good surety broker will also be able to identify what items are important and what items are not as they look to understand your business. This will avoid you having to fill out multiple forms and applications un-necessarily.

Once all of the documentation has been provided, a surety facility can be approved and open within a short amount of time.

Generally speaking a Construction Bond can cost anywhere from 0.5% to 1.5% of the awarded contract price inclusive of HST. Where the cost ultimately sits in this range depends on the amount of coverage the owner is requiring. Usually this is either 50% of the contract price or 100% of the contract price. The higher level of coverage requested the greater the cost. Warranty timelines will also impact the cost of a Construction Bond.

To determine pricing for a Contractor a surety company will evaluate the 3 C’s of Surety when looking at your application for a construction bond facility. These are character, capital and capacity. The more comfortable a surety company is with your business, its owners and the financial strength the lower the rate can go.

The amount of premium generated through your construction bond facility will also have an impact. Contractors who generate a lot of bond premium can expect lower rates than infrequent users of bonds.

Lastly, the duration of the contract can impact the cost. Rates are generally provided for a one-year period. If durations are in excess of 12 months then an additional premium may be charged. Surety companies may have special ratings for larger, long term projects so make sure you discuss with your surety broker to ensure you are receiving the best price.

Construction Bonds are different from insurance in one critical way. With insurance, the insurance company provides your business with a policy. If your business experiences one of the perils listed in your insurance policy, the insurance company will provide you with compensation.

With a construction bond, the coverage is provided to the project owner (also called the Obligee). If the project owner makes a valid claim against your construction bond and the surety is forced to pay a claim, they will then look to your business to recover those losses.

When you establish your surety facility with your broker you will be provided a single job limit and an aggregate limit. An aggregate limit is the total cost to complete of all of your outstanding work at any given point in time. You will also be provided with your surety bond rates for any performance and labour and material payment bonds you require and will also be charged an annual surety fee.

Bonding Facility Example:

• Single Contract Limit: $1,000,000
• Aggregate Contract Limit: $5,000,000

It is important to note that these limits are guidelines but are never set in stone as contractors require flexibility with their limits to ensure they can properly service their clients and grow their business.

As a long-standing surety brokerage we have excellent working relationships with all of the surety companies currently operating in Canada. Our key partners include:

• Intact
• Trisura Guarantee
• Aviva
• Travelers
• Zurich
• Western Surety
• Economical
• The Hartford
• Liberty
• Tokio Marine Canada

We know these companies well and understand their underwriting philosophies and principles. By understanding the appetites of each company, we are able to place our clients with the right surety partner. This ensures not only excellent terms but also a long-standing relationship that supports the growth and flexibility that our contactors demand.

Your bond broker is your main line of communication between you and the bond company. It is their responsibility to help you gather all the relevant information you will need to make an application for bonding as well as keep your file updated and your Bond Facility in good standing.

1. Reviews your financial statements and help you understand what bond limits you qualify for.
2. Understands what information is required to satisfy the bond company.
3. Prepares a submission to a bond company to qualify for bonding.
4. Negotiates with the bond company with respect to rates, bond limits and indemnity required.
5. Knows the marketplace and understands what terms are reasonable and competitive.
6. Works with your accountant to help you increase your bond limits as needed.
7. Has strong relationships with multiple bond companies providing you options if there is a need to switch bond companies.
8. Prepares and executes bonds and helps calculate the cost of your bonding.
9. Understands construction and acts as a consultant in many situations.

In the event that the contractor fails to perform its obligation under the contract, the project owner may make a claim under the construction bond. If the claim is founded, the bond company will then act on one of the remedies outlined in the bond wording. In the event of a default and claim, depending on the bond wording, the surety company may:

• Complete the contract involving the original contractor by providing any required financial, management or technical support.
• Re-tender to a new contractor and pay for the cost of completion in excess of the contract price.
• Pay to the owner the total amount of the bond.

The bond company will look to you for repayment after a claim under the terms of the Indemnity Agreement.

A key difference between bonding and insurance is that in the event of a paid claim, the bond company will look to you to reimburse them. Essentially, an indemnity agreement is an agreement between the contractor and the surety bond company which says that in the event of a paid claim on a contract surety bond, the contractor will reimburse the bond company for the amount of the loss plus any other expenses incurred from the default.

Any and all bond facilities are written with indemnity agreements in place. The indemnity can be corporate, personal by the shareholders and sometimes spouses of the shareholders will be required to indemnify. The surety companies will generally try to have as much indemnity as possible. It is the broker’s role to ensure that a reasonable indemnity is ultimately executed.