Labour & Material Payment Bonds

When you establish a surety bond facility your broker will provide you with a rating for the cost of Labour and Material Payment bonds. Project owners will ask for either 50% coverage or 100% coverage against the awarded contract price inclusive of tax. The cost of these bonds typically range between 0.2% and 0.5% of the contract price.

The factors that will affect the cost of Labour and Material Payment bonds include the following:

1. Financial Strength of the Contractor – the stronger the contractors balance sheet the better case there is for a lower rate.
2. Premium Volume – the more bonding premium generated the stronger the case for a lower rate.
3. Track Record with Bonded Work – a long and successful history of completing bonded work will provide a better case for a lower rate.

As an example, for a $100,000 contract inclusive of tax, the Labour and Material Payment bond cost will range from $300 to $500.

Labour and Material Payment bonds are always required in conjunction with a Performance bond and cannot be issued on their own.

To obtain a Labour and Material Payment bond you must have an active surety bond facility. If you do not have an active surety bond facility then you should speak with an FCA Advisor today to learn how to establish a bonding facility for your company.

When applying for bonding the surety company will look at the Character, Capital and Capacity of your business.

Character: Does the contractor have a good track record, good references and integrity?

Capacity:  Does the contractor have sufficient cash flow to service the job and to weather potential delays in payment?  Is a line of credit in place, in case of emergency?

Capital:  Does the contractor have the net worth position and working capital necessary to complete the project and support the various other projects they are undertaking?

Your FCA Advisor will explain to you why the surety considers Character, Capital and Capacity as the foundation for your bonding facility and how these are measured. Once they understand your business they will also explain exactly what documentation is required in order to proceed with an application for a bonding facility.

A board form Labour and Material Payment bond is a non-standard bond that provides coverage to both trade contractors and suppliers with a direct contract with the bonded contractor and those one tier below the trade contractors and suppliers who hold a direct contract with the bonded contractor.

Yes, the new Form 32 bond is a broad form bond which provides coverage to 2nd tier trade contractors and suppliers.

Yes, under section 39 of the Ontario Construction Act, trade contractors and suppliers are entitled to see a copy of the Labour and Material Payment bond. In fact, the owner is actually holding this bond in trust for the benefit of trade contractors and suppliers.

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
• The Guarantee Company of Canada (GCNA)
• Trisura Guarantee
• Aviva
• Travelers
• Northbridge
• Zurich
• Western Surety
• Economical
• The Hartford

We know these companies well and understand their underwriting philosophies and principles. This is very important as no two sureties are alike. 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 contractors demand.