If you are entering into the construction field, you are going to have to familiarize yourself bonds. This is especially true with performance bonds, as they are an integral part of doing business in Canada. You should know that performance bonds can be complicated and are at times hard to understand. This is why it imperative that you take the time to do your homework beforehand, so you will have a better understanding of the performance bond.
However, if you find a reputable and reliable surety company to do business with, they can take care of everything for you, but it is still best to have a proper understanding of the entire process. Below, you will learn tips, information, and how long it takes to acquire a performance bond.
Understanding Performance Bonds
Performance bonds are issued to provide financial and legal protection for individuals involved in construction projects. In Canada after winning a bid the contractor will be required to secure a performance bond Canada. This bond will ensure the developer that the contractor will guarantee his or her work and performance per the contractual agreement. To read more about the purpose of performance bonds, click here.
While, it might sound like this bond was only designed to protect the obligee, it is important to understand that the bond can protect the contractor, as well.
Understanding The Turn Around Time
Once you have completed the application process, you will have to wait for your approval or denial. This will be known as the turnaround time. You should know that it would be hard to give a specific time in which a surety company will turn a bond around, because there are several factors that can affect the turnaround time.
For one, the surety company that you are working with will play a major role in how long it takes to receive your bond. Some companies like to do a more in depth background check, which can take a little bit longer. This is something that you should confirm with the company ahead of time, as you might be pressed for time to receive the bond.
Obtaining A Credit Report
Every time an underwriter receives a performance bond application for a construction company, they will immediately begin to investigate the applicant’s background. This will include obtaining a credit report from the top three credit reporting agencies. This process may take several days, but this will depend on how fact each agency responds to the request. There have been many alterations made to this process and in some cases, the credit report will be returned within the first 24-hours after the initial request.
Basically, this process will take anywhere from 24-72 hours, so this must be calculated into the overall turnaround time.
Depends On The Applicant
Believe it or not, the applicant can speed up the pre-qualification process or slow it down significantly. What this basically means is if you are not prepared for the process, you are going to be looking at an extended pre-qualification process. You can speed up the process, by gathering all of your financial statements, professional references, key employee organization chart, and continuity plan, before submitting the application.
Depends On The Security Company
Each and every surety company has developed their own system of operation. Of course, they all work diligently to complete an extensive and thorough pre-qualification process. The method of operation can speed up or slow down the process significantly. If the underwriter is experienced in the field and possess the skills to complete the process in a timely manner, everything will go smoothly. The exactly opposite will occur, if the underwriter is new to the industry or just operates at a very slow pace. Whatever the case may be, it will be solely up to you to remain calm, cool, and collective. Getting upset will not help your case in the least.
Business And Continuity Plan
When applying for a performance bond, the contractor will need to supply the surety company with a copy of the actual business and completion plan. These plans will need to include the following:
- Geographic area of operation
- Type of work sought
- Growth objectives
- Operational procedure in the event of the owner’s death
- Life insurance policies
- Prospects for construction work
Take your time to devise a professional and long-term plan, because if you rush through the task, the underwriter will know it.