At CapriCMW, we have an experienced team of dedicated Surety Bond Advisors who can help your business navigate the muddy waters of surety to obtain the bonds required and answer any questions you might have.
Our expertise enables us to quickly and holistically provide solutions to your business. We are deeply connected to BC’s construction industry, with strong industry partnerships through associations such as:
- Vancouver Regional Construction Association,
- Northern Regional Construction Association,
- Vancouver Island Construction Association,
- Southern Interior Construction Association,
- Mechanical Contractors Association of BC,
- Electrical Contractors Association of BC,
- BC Construction Association,
- Surety Association of Canada,
- and others.
We keep informed of industry trends, changes, and education to serve as a key resource for all construction-related issues and topics.
What is a Contract Bond?
Contract Bonds, also known as Construction Bonds, ensure a contractor (principal) fulfills their obligations under a contract. Should the contractor default on their contractual obligation, the surety company will be required by the bond to either a) pay out to the obligee for the loss suffered as a result of the default or b) remedy the situation to allow for the completion of the obligation, up to the amount at which the bond’s value is set.
There are two ways the surety can remedy the situation:
- Provide financing for the principal to complete the project.
- Pay another company to complete the project.
Any loss that the surety suffers through remedy or payout is expected to be repaid back to the surety by the principal. This, along with the three party relationship, are the fundamental differences between surety bonds and insurance. Surety bonds may be provided by an insurance company, but surety bonds are not insurance.
Key Contract Bonds
There are five types of contract bonds and instruments. These are:
Guarantee that the obligation the contractor has with the owner is satisfied.
Labour & Material Bond (Payment Bond)
Guarantee the contractor will pay all subcontractors and suppliers in relation to the obligation (project). This limits the possibility of lien claims against the owner.
Assures a contractor is prequalified to bid and they are serious with obligations with respect to their tender and will follow through.
Consent of Surety (Agreement to Bond)
A commitment by the bonding company to provide the requested Performance and/or Labour & Material Bonds to the owner if the contractor is successful on their bid. This is not a bond technically and is only executed by the bonding company.
Guarantees, for a specified period of time (typically 1 or 2 years), that the work the contractor was responsible for will be protected from any defects, faulty workmanship, and design. The contractor will be responsible to fix any issues and if they are unable, the bond will ensure that any qualified work is completed.