Who Requires Surety Bonds?

As a company, which wishes to operate in Canada, it is pertinent to abide by the government’s laws, guidelines and regulations. If you fail to do so, you could very well end up facing lawsuits, and other repercussions. One of the most common tasks that companies will need to fulfill is acquiring the appropriate surety bonds by finding a specialized and experienced surety bonding company. For tips on what to look for in a surety broker, visit this page. These bonds are required by an array of different entities and the specifics will vary depending on your company and the specific industry that it entails. Within guide, you will discover who requires surety bonds and why these are required.


What Are Surety Bonds?

Before getting into the requirements, it is a good idea to catch upon the basics. A surety bond is simply an agreement between two individual groups. The specifics will prove to be incredibly diverse depending on the specific type of bond in question. In many situations, the bond holds a company to their initial word and helps to guarantee that they’ll pay their subcontractors or will fulfill their obligation. One side of the contact is protected, while the second is required to deliver in some way. You can go to https://www.constructionbond.ca/faq/ to better understand how these bonds work and how to obtain them as easily as possible.


Who Sets The Requirement?

Again, the requirements will vary depending on the specifics, such as your company’s industry and the unique job ahead. In the same sense, the entity, which makes the bond a requirement, will also deviate. If you’re operating a construction company, which intends to bid on a public project, it is highly likely that the province will require you to acquire a bid bond and performance bond. So, in many situations, it is the Canadian government or local provincial government, which sets the requirement.

Of course, this is not always the case. In some situations, the project owner will demand the bond. Truly, the specifics are never universal. The specific variables related to the project at hand will depend on the project itself.


Why Are They Required?

The mass majority of business owners will initially believe that bonds are nothing more than another expense, which will cut into their earnings. Although this may be true to some degree, there are truly a lot of good reasons for surety bonds to be required. First and foremost, the mass majority of bonds are required for one reason and one reason alone. They’re capable of providing consumers with protection from fraudulent companies and devious actions. When the bonds are set in place, the principal is held to their word. If they break their contract, they’ll be hurt substantially and will face substantial financial losses. This gives them plenty of reason to remain on the straight and narrow.

Secondly, the requirement of the bond helps to ensure that the system works efficiently. If everyone was able to place a bid or file a court appeal, the system would be overwhelmed and it would likely slow to a crawl, due to the backlog. The requirement of the bond helps to guarantee that only legitimate and trustworthy individuals are capable of placing their bid or filing their appeal. This helps to diminish risks, while also keeping the system running efficiently.


Understanding Price Requirements

When it comes to surety bonds, you should remember that there is an array of requirements to consider. First and foremost, obtaining and maintaining the bond will most likely be a requirement. Of course, this isn’t the only requirement that will be integral. Secondly, there will usually be a bond amount requirement. The amount required would also be set by the same group or entity, which makes obtaining the bond a requirement. Determining the risk involved will help to set this amount. In all likelihood, a project with a lower risk will come with a lower bond amount and vice versa.

Just remember that you will not be required to pay the entirety of this amount. The surety bond will analyze your company’s finances and your personal credit score to figure out exactly how much you’ll be required to pay. Typically, the premium will equate to a small percentage of the required amount.


1. Federal Contractors

Any contractor that is employed by the federal government directly or indirectly is required to be bonded. Of course, this may only be instances, where the development or construction is valued around $150,000 or higher. If you have any questions about the construction bond requirements of a federal construction contractor, you will need to contact the appropriate provincial entity.


2. Material Supplier or Vendors

If you are supplier, working under a building contractor, you may need to be bonded. A supply bond is a type of surety bond that guarantees the project owner that the supplier will comply with the terms of the contract. Many project owners will only consider suppliers that are bonded, because they are so familiar with the risks of a subcontractor default.


3. Contract Bidders

Construction contractors will tend to bid on development or renovation projects throughout their entire career. While, the project owner will often choose the lowest bidder, if they sense frivolous behavior, the project may be awarded to the next bidder in line. The only way to genuinely rule out a frivolous bidder will be to have each bidder submit a bid bond, along with their bid.

The bid bond will ensure the project owner that the bidder is more than willing to enter into a contract and capable of fulfilling the contract’s terms. In many cases, Canadian contractors bidding on public projects may be required to post a bid bond. Those bidding on government projects will be required to post a bid bond at the time of the initial bidding process.


4. Probate Court

Probate courts require executors or fiduciaries to post a probate bond, which is another form of Canadian surety bond. This bond is put into place to protect the heir of an estate from fraud. A fiduciary may be appointed in cases, where the heir is underage, mentally or physically incapacitated.



At the end of the day, the requirements will never remain the same. Each individual situation will call from something different. In order to figure out the specific requirements for your situation, you should take the time to read the related Canadian statutes. These laws will tell you precisely what is required and who requires it.


Other frequently asked questions regarding surety bonds