A Surety Bond is a type of agreement that provides a financial guarantee to the party awarding a job to a company. The entity providing the guarantee on your company’s behalf that you will finish the job as promised is referred to as the Surety. The collateral put up, in most cases nothing, for the surety bond helps to ensure that the obligation to the second party (the project owner) is fulfilled on time and as initially discussed by the company getting the bond. The surety company steps in when there is a significant portion of the losses in the event a company defaults on a job.
Many business owners will feel like the bond is simply a way for the government to remain in control. This couldn’t be further from the truth. The government of Canada makes the bond a necessity as a way to protect its citizens. The bond is truly a type of safety net, which is used to protect whoever will be served by the bond’s principal. The requirement also makes it less likely that nefarious and illegitimate companies will be able to serve Canadian citizens. There is good reason for surety bonds.
Again, many business owner will simply see the surety bond as yet another hurdle to jump. This is yet another misconception. While the surety bond is sometimes forced onto the business, it is actually a good thing for all parties involved. In many cases, the bond is a requirement. Nonetheless, it can help to show your company in a good light. If a customer knows that your company is familiar with surety and more than willing to obtain the bond, they’ll be much more likely to work with you. They’ll feel like your company is legitimate and trustworthy.
At the same time, all businesses should feel the urgency to protect their clients. Surety bonds give you the ability to do just that in the most convenient way possible.
In order to fully understand the surety bond, it is essential to gain further insight into the parties involved. As briefly mentioned above, surety bonds involve three parties. The bond arrangement will include an obligee, principal and the surety. For your benefit, these three will explored in greater detail below.
These three parties are interchangeable and will differ from one situation to the next. The principal might be a construction contractor, but it could also be any other type of service provider. The obligee can also change. It is generally a Canadian consumer, but may also be a municipality or another business. Nonetheless, the surety remains the same and their responsibilities never differ.
As a service provider that wishes to serve Canadian consumers, you should realize that you will be required to obtain bonds at some point or another. Of course, the type of construction bond needed will deviate from one field to the next. As a construction contractor, you will be required to work primarily with three bonds, which include the performance, bid, and payment bond. The bid bond will enter the picture first and will be required before the project gets underway. As the name suggests, the bid bond is required when placing a bid on a new project.
The performance bond is used to guarantee topnotch performance from the contractor. And finally, the payment bond provides subcontractors and suppliers with the reassurance that they will be paid by the contractor. These are the three most common bonds for contractors in Canada. While there are others, it is best to get started with these, before trying to expand your scope further.
The Canadian government requires most businesses to be licensed. A license surety bond is beneficial for the governmental agencies and the business owner. They can be utilized to encourage consumers to do business with your company. The government uses the license bond to ensure consumers are protected from fraud.
In some situations, the consumer may not be satisfied with the performance delivered by the principal. In this type of situation, the surety bond will prove to be immensely important. It will help to ensure that the obligee is able to file a complaint against the principal and attempt to seek damages for their losses. In order for this to happen, the obligee will first need to file a dispute with principal’s surety company. The consumer should submit as much as information as possible, so the surety company is able to fully comprehend the situation and quickly identify the principal’s failure.
After the complaint has been filed, the surety company will carefully investigate and question both sides. They’ll eventually come to a conclusion and side with one group or the other. If the surety sides with the principal, nothing will happen. However, the obligee may also decide to take things a step further by taking both companies to court. If the obligee is determined to be correct, they’ll receive a payout or the surety will help find a company that is capable of completing the project.
When attempting to acquire the bonds that are needed in the construction industry, one of the most important factors to consider will be the price. Businesses in Canada need to keep the costs to a minimum, in order to generate the biggest income. With this in mind, you should take the time to familiarize yourself with the cost of the construction surety bond. The cost will actually change and will be determined by using a handful of characteristics. The surety company will closely consider your company’s history. Have you had difficulty getting the job completed in the past? Have you ever been involved in a dispute with a client?
These are things that will be considered when attempting to put a price tag on your surety. Your credit score is something that will also be noted. And of course, you should remember that each surety company is unique. It is highly unlikely that all surety companies will provide you with the same price. This is why it is absolutely pertinent to shop around as much as possible. Shopping around will make it possible to acquire the most generous price.
Applying for a surety bond should start with an obtaining a free quote. Surety companies will provide Internet users, who visit their website with access to a free quote form. The quote form is very simplistic, with various questions about the applicant and their company, bond amount and type. These forms basically work in the same manner as a free auto insurance quote form. They allow consumers to obtain an approximate quote, but the real application process starts later.
Once you receive your quote, you will have an idea of the annual premium, but really nothing else. In order to apply for a construction surety bond, you will need to select a surety company and go from there. The application process is very extensive, because sureties are responsible for ensuring the public that the company is reliable and capable of performing a specific project. This is a huge responsibility that all sureties take very serious, which is why the application process is so in depth.
The applicant must obtain a wide range of verified documents, professional references and a credit history report. The surety will need to verify these documents and perform a background check on the applicant’s business operations and reputation. If there is a long list of claims and complaints, regarding the previous contracts, there is a good chance the surety will deny the bond request.
Once the bond is approved, the principal will need to pay the surety an advanced premium for the first year. The last step of the process, will involve sealing the deal. The applicant must sign and date an agreement, along with the spouse, surety and witnesses.
As a contractor working in Canada, you should realize that nothing comes easy. You need to go out there, grab success and make it yours. Your surety bonding facility isn’t going to obtain itself. When you’re ready to get the ball rolling, you will want to start by filling out the simplistic application. Before you know it, you’ll be well on your way to obtaining the price bonds that are needed for your individualistic situation.