Surety bonds are utilized in a variety of industries in Canada. While they are more commonly seen in the construction industry, they are also utilized by businesses, government entities, and non-profit organizations. The purpose of the surety bond is to protect the obligee, which is the individual working with a principal to complete some type of project and fulfill a specific service. Whatever the case may be, it is crucial to know what a surety bond is, how it works, and what it means to post such a bond. You will find the answer to these questions in the article below.
What Is The Purpose Of A Surety Bond?
Surety bonds are instruments that guarantee 100 percent satisfaction. When a government entity, organization, business, or individual reaches out to a contractor to request information about a specific project, one of the first things asked is whether or not the contractor is bonded. Most consumers will refuse to work with contractors who are not bonded. The reason behind that theory is because, without a surety bond, the contractor has no way of offering a security guarantee.
It is the principal’s or contractor’s responsibility to obtain a surety bond. These bonds are drawn up usually for specific projects or services. The principal and obligee work alongside the surety to develop a contract that is specific for a project or service. All three parties must determine the best way to approach the underwriting process. Once the parties agree on all the specifics, a Terms of Agreement is written up with the very fine details.
Terms Of Agreement
A Terms of Agreement is a written instrument utilized for bonding purposes. The document contains the most important details of the project or service. Some details that may be included in the Terms of Agreement include the deadline, overall cost, a set of rules established between the obligee and principal, specifics about sub-contractors, and other important details.
The surety bond is not legal until all involved parties agree on the Terms of Agreement and provide their signatures. Every step of the process is documented by the surety just in case an issue arises in the future to warrant a claim.
Surety Bond Coverage
People who are new to the surety bond market, it is crucial to learn everything possible about the instrument. Once you know what the surety bond, you need to determine exactly what its coverage entails. When the parties agree and sign a surety bond, they all agree to abide by the Terms of Agreement. If at any time, a party believes they are being duped by the other party, they can file a claim on the surety bond. Once the claim process is complete, the surety company, underwriter, or insurer will initiate an investigation to determine if it is fraudulent or valid.
Surety bonds cover the very fine details documented in the Terms of Agreement. But, to give a short answer to what surety bonds cover is the amount of money invested in the project. If the surety determines the claim is valid, the full amount of the investment, as well as litigation costs will be paid to the obligee. The principal is responsible for paying any money owed to the obligee if the claim is determined to be valid.
If the principal does not have the money to cover the costs, the responsibility will fall to the surety company. This is why applicants must undergo a rigorous pre-approval process. Surety companies will deny a bond to any applicant that is deemed a “bad candidate” because the risks of a claim is extremely high.
Requirements Of A Surety Bond
All contractors or service providers who are new to the Canadian surety bond market need to know the requirements before completing a bond application. In Canada, contractors must obtain a surety bond before their licenses are authorized. In these cases, the government utilizes the bond as a form of protection. The surety bond protects consumers from becoming a victim of fraud.
In order for a surety bond to be valid, it must be written by a reputable surety company, underwriter, or insurer. The bond requirements vary from one province or territory to another. To learn more about surety bond requirements contact the appropriate government entity.
You’re Working With Three Parties
It is pertinent to remember that you’re not alone. A surety bond involves three parties. Obviously, your company will be one. Therefore, you’re going to be working with two parties. First and foremost, you’ll have the obligee. This is the client. The obligee is demanding that you acquire the surety bond. Then, there is the surety. The surety is the company that is providing you the surety bond. Therefore, you have two obligations.
First and foremost, you have to make sure that you fulfill the agreements you’ve come to with the obligee or your client. If you do not, the client can file a claim against your surety bond with the surety company in question. Therefore, you need to do everything in your power to ensure that the client is satisfied. Simultaneously, you are making a commitment to the surety. The surety company is putting its neck on the line for your company.
They’re giving their word and they’re helping you with the financial burden. If a claim is made against your company, it could potentially impact the surety too. With that being said, there are three parties involved in a surety bond. As the principal, you have to satisfy the obligee to ensure that they do not file a claim with the surety. It is pertinent to fulfill your duties to avoid repercussions in the future.
You’re Making A Guarantee
A surety bond is far more important than most people imagine. You know that it is likely a requirement. However, you may not understand what those requirements are. When you post a surety bond, you’re agreeing to something. There will be an arrangement between your company and the client. The terms of that agreement will be written in the surety bond. They could include many things regarding the project at hand. For instance, you may promise that the project will be completed in three months. Or, you may agree to use certain suppliers and only work during the week.
It is up to your company and the client to find out what is going to work best for your situation. Once you’ve posted the surety bond, you have to live up to your end of the bargain. You’re making the guarantee. If you do not fulfill your guarantee, there is a good chance that the client will become angry and they’ll likely file a claim against your surety. With this in mind, you have to be cautious. You need to make sure that you’re doing everything you can to meet and exceed the customer’s expectations.
It is pertinent to make sure that you’re going to be able to fulfill your duties before posting a surety bond. Otherwise, there is a good chance that you’re going to run into major issues in the future.
You’re Getting Financial Assistance
There are numerous ways to give the client your assurance. One way to do that is by putting up surety in the form of capital. This means that you’re going to take money away from your company and put it at risk. If something goes wrong and your company is unable to fulfill its obligations, there is a risk that you’re going to lose that money. Simultaneously, your company may not have enough capital to meet the client’s demand. This is why you’ll want to post a surety bond. Doing so means that you’re acquiring financial assistance from another entity.
The surety company is putting its name on the line for your business. Simultaneously, they’ll help you finance the guarantee. You should look no further than bail bonds. If you get arrested and you’re granted bail, you will be required to pay a certain amount. In general, you’ll pay 10% of the bail and the bondsman will pay the rest. The bondsman is saying that you will show up to court and fulfill any other duties set forth by the court. This is similar to other bonds.
You’ll be working with a bond and they’ll put up a portion of the money too. The surety company is taking a risk working with you and this is why they’re going to charge you a monthly premium. Again, you could avoid the surety bond and post capital but this is far riskier. It is best to acquire financial assistance from the surety company.
Posting a surety bond is a basic principle. You’re saying that you’re going to fulfill your duty. However, you need to understand that there are many types of surety bonds. And, you should know that the meaning will vary significantly. The impacts of posting a surety bond depend on the bond that you’re talking about. For instance, you may need to acquire a commercial surety bond. This type of bond is designed to protect the public. It favours the general public. The client requires you to obtain the bond to ensure that the public is going to be protected to the fullest.
With a contract surety bond, the meaning is different. When you post a contract surety bond, you’re saying that you will fulfill the duties set forth in the contract. As an example, you may agree that you’ll get the job completed in a few months. Or, you may agree to work during the week only. You’ll also find yourself working with bid bonds. Canadian companies often use bid bonds to seal the deal. The bid bond confirms your bid and it confirms that you’re willing to obey your bid.
Without a bid bond, you may be able to pull out of the deal or change your price. With the bid bond, this would be impossible. Also, in the event your bid comes low and you get awarded the job, you will be required to provide a performance bond, which guarantees that you will perform the job up to agreed terms between you (principal) and the project owner (Obligee). Therefore, you have to understand that the fundamentals of the surety bond change based on the type of bond that you’re dealing with. Again, Canadian surety bonds can be very confusing. Therefore, you have to be very cautious. Make sure that you work with a professional so you can find out what it really means to post your surety bond.
Posting A Surety Bond
Ultimately, acquiring or posting a surety bond can be far more difficult than you might believe. After all, you’re running a Canadian business and you have many responsibilities to juggle. Therefore, you do not have a lot of time or energy to focus on other activities. With this in mind, you will likely have questions about this issue. The good news is that assistance is around the corner. You’ve found out what it means to post a surety bond. Now, it is time to post one for your company.
The best way to move forward is by working with a reputable surety company. By doing so, you will be able to squash your concerns and acquire the bond that you’re after. A surety agent will provide you with advice and assistance so you can get what you need as soon as possible. While you might be able to solve this issue on your own, it is best to navigate the path with assistance from a surety expert. Remember that we can help you connect with a good surety bond company.
At the end of the day, some Canadian companies will be forced to jump through more hoops than others. It depends on numerous factors. If you’re running a business in a high-risk industry, there is a chance that you’ll be required to obtain multiple surety bonds. For instance, you may have to obtain a license bond before you can obtain a license and begin serving the public in your area. Without a license bond, you would not be able to acquire a valid license and you would be serving the public illegally. Simultaneously, you may be required to obtain a bid bond.
This is the bond that you’re going to use when you’re placing a bid on an upcoming project. The bid bond confirms that you’re willing to accept the bid that you’ve made. You may be required to obtain a contract surety bond too. This type of bond is required before you enter into a contract with some companies. In some cases, you may not need these bonds. Again, it depends on numerous circumstances including your location and the entity that you’re going to be working with.
Finding and acquiring the right surety bonds can be difficult. Therefore, you should skip the headache and work with us. We can help you find a good surety expert in your area. From there, you’ll have little to no trouble acquiring the bonds that you need!
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.