Performance Bonds

Generally speaking a performance 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 Performance 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 performance 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 performance 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.

Performance 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 in your insurance policy the insurance company will provide you with compensation.

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

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 Performance 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 24-48 hours.

At FCA Surety, we know that every company starts somewhere. If you are a new company or a smaller construction firm targeting jobs under $1,000,000 and have been told you don’t qualify for bonding, the FCA FirstBond™ for New and Emerging Contractors program might be perfect for you.

FirstBond™ is a quick and easy solution for new and emerging contractors across Canada who are looking to establish their first facility.

The program is an excellent opportunity for contractors to establish their first relationship with the surety, build a portfolio of bonded work and build their knowledge of how construction surety works.

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 labor 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
• 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 contactors demand.