There is no disputing the fact that bonds are confusing and complex. If you have one any research whatsoever in the area, you probably already know that there are not only a variety of bonds available for a variety of situations, but they all come along with different price tags. Heck, some industries and businesses in Canada might not even legally need bonds to operate, while so do. Whatever the situation is, you can probably already see the importance of understanding everything you possibly can about bonds and how they affect you. All that aside, one of the most common questions that we receive here at ProfessionalsCoverage is, Do surety bonds ever expire?” This is an excellent question and one that you need to be well aware of.
Based On The Terms
The first thing that you need to know is that there are going to be terms set when you apply and qualify for bonds. Yes, these terms are going to vary from insurer to insurer. Some of these terms will include the length of the bond. That’s right, the majority of surety bonds, especially construction performance bonds and bid bonds, will only last for a set period of time, usually referred to as the surety bond term. Once the surety term is up the bond will need to be renewed or extended. If the bond isn’t renewed or extended it could potentially result in unwanted repercussions. All that aside, the most important thing to remember here is that most bonds are limited for a specific time. And, this specific time will be defined when the bond is acquired. Some bonds can potentially last for multiple years as long as you keep up with the premiums.
Not All Bonds Can Be Renewed
You just learned above that bonds can be renewed. This is true, but it isn’t always the case. Some bonds cannot be renewed or extended and this is going to depend on a variety of factors. The first factor, of course, being the type of bond that you are dealing with. Another factor is the obligee. The obligee is the party that requires the bond in the first place, and there are some instances when the obligee might no longer require bonds to be in place. For instance, say that you are working on a residential construction site in Ottawa. If the job lasts for two years and the bond is only good for one, the obligee may choose not to require you to get a bond for the second year of work.
Why would the homeowner require a bond then not require one? When a homeowner first hires your company he or she might not be aware of your work ethics and morals. Once he or she knows that you are willing to do the work properly and stand behind that work they may no longer need a written guarantee that you will do so. Keep in mind that this may not always be the case with commercial jobs. Whether the owner of the project trusts and respects your work, it is required by law in many Canadian provinces to have these bonds in place while working is going on.
If the bond cannot be renewed and there is still work to be done do not fret just yet because there is still hope. It is entirely possible to obtain what is known as a replacement or renewal bond. This can be obtained from the carrier and it will allow you to legally continue the work.
Can Bonds Be Canceled?
If you are concerned about renewals, you are probably also concerned about cancellations. Why would you want to cancel a bond before fully understanding if, when, or why you would need a surety bond? Well, a lot can happen on any job site. Maybe the obligee decides to go with another company. Maybe the job is over. Perhaps the job gets canceled due to a lack of funds. Whatever the situation is, you need to know that bonds can be canceled, just not all of them. In fact, some bonds can only be disregarded when the obligee releases them. Just keep in mind that in these situations, the premiums will remain due yearly until the release is legally obtained.
Can Bonds Be Renewed Before They Expire?
This is another excellent question and it is one that we hear a lot here at ProfessionalsCoverage. Absolutely! It is entirely possible to renew your bonds before they expire. In fact, we usually recommend our customers to do so. This not only keeps the ball rolling, but it helps prevent any downtime on the job because there are some jobs where you cannot legally be on-site if there isn’t a bond in place. Doing so would not only potentially result in unwanted fines, but it could potentially result in jail time. When you renew the bonds before the expiration, you simply eliminate the chances of any complications that could arise as a result of a lapse in coverage.
You also need to remember that bonds take time to process. Here at ProfessionalsCoverage, we do everything within our power to expedite the process, but there is no getting around the fact that bonds that time to process. Waiting until the very last minute only increases the chances of delaying the entire job. And, this is something that is only going to put you at odds with the obligee.
Also, keep in mind that at the end of the year, usually when bonds are required to be renewed, many local and state offices have limited hours of operation. Simply put, waiting only means that you increase the potential of complications due to lapse in coverage.
How Much Does It Cost To Renew Bonds?
It is true that first-term bond prices are going to be based on several varying factors. It is also true that some of these factors are going to weigh in when renewing the bonds. For instance, underwriters will assess the likelihood of a claim against the bond by checking into the frequency of claims in the past for this specific type of bond. It probably does without saying, but the greater the chance of a claim, the more the premiums are going to be. That being said, there are factors that can combat these extra expenses. One factor might be having multiple years of experience in the industry and avoiding claims throughout those years.
Other factors that are going to weigh in are the amount of the overall bond and your credit score. A higher bond with a lower credit score means that you are going to pay more money. It also might mean that you might not even be able to get bonded in the first place or have to visit a high-risk insurer. Insurers do have the right to turn you down and they certainly will if the risks are too high.
Bond Renewal Process
There are happenings that cannot be projected, which can result in a deadline being delayed for a few days, months, or years. Malfunctioning or stolen equipment, natural disasters, and other unexpected events can alter the plants of a construction project. When the contractor is faced with such tragedies, he/she must seek the advice of all parties involved in the project. To avoid a claim, most parties will agree to push the deadline back. If it just happens that the bond is ready to expire, the parties will need to have the construction surety bond renewed.
The fees charged to have the bond renewed will be the responsibility of the principal. The renewal fees will vary depending on the principal’s credit and claim history and the surety company. The surety company has the option of denying the renewal request if the principal does not meet the bond requirements.
Sometimes there does not need to be a reason to renew a surety bond. This is especially true for services that do not have a deadline. For example, commercial and residential cleaning services can last forever or until the customer and contract company decides to part ways. In these cases, the contractor will be required to renew the surety bond before it expires.
Fortunately, renewing a surety bond is not as in-depth or complex as the initial pre-approval. Of course, the surety company will need to evaluate the risks of bonding the principal even during the renewal process. The premium is determined by the surety company and based on the risk exposures involved in extending the bond. The surety must factor in the principal’s credit and claim history, debts, cash-on-hand, experience, bond type, and financial status.
Continuous Until Cancelled
As mentioned above, some surety bonds are not subject to a deadline. The true meaning of surety bonds coverage period is often understood to as “Continuous Until Cancelled”. These surety bonds are commonly utilized by companies, organizations, or contractors that provide continuous services to government entities, non-profits, and businesses. A few examples include housekeeping, maid, cleaning, babysitting, and window washing services. These contracts will continue until the parties involved agree to end them. Once the contract is scheduled to end, the principal will contact the surety to have it canceled.
If you would like to learn more or speak to a broker or agent regarding your bonding needs, you can contact us or request a quote.