As a bonded contractor, one of your main objectives is to receive as many construction projects as possible. The more projects you land, the higher your revenues are. It also establishes your reputation in the marketplace as a reliable builder.
But before you can hope to do so, it is mandatory to get a performance bond. Most project owners will require one before hiring you for a particular job, and not having one puts you at a disadvantage.
Businesses require this surety because it provides the best guarantee of completing a job according to a contract’s conditions. Unless you have it, the chances of firms hiring you for a project are slim.
If you have never purchased this kind of surety bond before or are just starting as a contractor, these are some things you should know about it, including its definition, types, etc. Knowing about them will help you get familiar with the entire process.
What is a performance bond?
It is a three-way arrangement between you (the principal or contractor), surety (the company offering the bond and acting as guarantor), and the project owner (called the obligee).
A performance bond guarantees that you will fulfill the terms, conditions, and obligations specified in the contract between you and the owner. Usually, businesses require either 50% or 100% of the contract value.
Is it the same as insurance?
No, unlike what some people might think, it differs from insurance in one aspect. In an insurance policy, the company provides you compensation for the damages or losses incurred by your business, provided the policy covers it.
In a surety bond, if the project owner makes a claim against the bond, and the surety makes the payment, they will collect it from you later. If you don’t repay the company, they might consider taking legal action and imposing penalties against you.
Which industries require a bond?
Most businesses require these bonds, particularly companies that provide services to government entities. In many states, they are compulsory for all publicly funded construction projects worth over 500,000 CAD.
Some industries that commonly require them are general, mechanical, sewer, water main, electrical, heavy civil, and road paving contractors. Service-based industries in which they are necessary are tree cutting, landscape, snow removal, and janitorial.
What are the types of bonds?
They are of three types: CCDC, Form 32, and SAC Headstart Subcontractor. Here’s what you should know about each of them.
CCDC
Provided by the Construction Documents Committee of Canada, it guarantees the fulfillment of the contractual obligations by the contractor.
Form 32
It is primarily used in the province of Ontario in Canada by all publicly funded companies for contracts with a value exceeding 500,000 CAD. It was created to make the surety claims handling process easier and faster.
SAC Head Start
The surety industry created it to address the concerns raised by contractors about the lengthy subcontractor default claims process. A traditional claims resolution process takes a lot of time to settle, which causes contractors significant losses due to delays.
The Head Start Performance Bond expedites the claims resolution process, allowing the contractor to offer their solution if any.
What is the best way to get it?
The best way to get the bond is by contacting the right broker. Since they work closely with various surety markets, they will help you find a surety company suitable for your business and requirements.
Before hiring a brokerage, you might consider asking them about the surety companies they work with. The broker will carry out all negotiations on your behalf, gather all the information necessary for making an application, and ensure your file is updated.
You must have a performance bond as a contractor to land more projects, get a step ahead of your competitors, and let project owners know that you can be trusted. Finding the right broker will make the process easier for you.
