Contractors Insurance is a trusted and award-winning commercial insurance brokerage based in Ontario. We specialize in providing tailor-fit insurance, as well as surety bonds for construction, to businesses and professionals that need them.
In the same way that insurance plans protect a business from financial loss in the face of unforeseen events, surety bonds protect an obligee (the customer or project owner) from work/services that are illegal, below industry standards, or not in accordance with the set contract.
In some cases, surety bonds are required – there are a number of industries that typically need surety bonds. Aside from this another key benefit is that surety bonds serve as a competitive edge because it boosts customer confidence. If you or your company is bonded, there is a stronger guarantee that a task or project will be carried out satisfactorily.
It is important to understand that there are stark differences between how surety bonds and insurance plans work. Moreover, there are different kinds of surety bonds available for businesses, independent contractors, and professionals.
Through our years of service, we have provided surety bonds for various industries. Our hands-on service and expertise will help you get the surety bonds that you or your business really need. With Contractors Insurance, you can be sure you’re in good hands!
What Are Surety Bonds for Construction?
Surety bonds are a legally binding contracts that involves three parties:
- The obligee – the one protected by the surety bond
- The principal – the one who purchases the surety bond as a promise/guarantee to the obligee
- The surety company – the company that provides the surety bond
In essence, a surety bond is like a promise made by a principal through a surety company, to an obligee, that a task or project will be carried out: (1) legally, (2) according to industry standards, and/or (3) in accordance with a set contract.
To be more clear about who are usually the obligees and the principals in various dynamics, consider these examples:
|Scenario||The principal||The obligee||Type of surety bond
commonly used for this:
|Construction of a new building||The construction contractor||The project owner/s||Performance bond|
|The acquiring of materials for a landscaping project||The landscaping contractor||The supplier/s||Payment bond|
|The provision of accounting services||The accountant||The clients||License and permit bond|
If the principal fails to hold their end of the bargain in relationships such as these examples above, the obligee, through the surety bond, will be guaranteed indemnification or compensation for sustained losses. Because of this guarantee, customers/clients in certain ‘high-stakes’ industries (such as construction, accounting, and so on) are more inclined to trust a professional, contractor, or business that have the right kind of surety bond.
Mainly, there are two types of surety bonds: contract surety bonds and commercial surety bonds.
1. Contract Surety Bonds
Typically used in the construction industry and related trades/professions, contract surety bonds are secured by various kinds of contractors. These surety bonds are set up to ensure that the terms of a contract relating to a project are met.
A. Performance Bonds
A performance bond is a subtype of contract surety bond that guarantees that a project will be completed satisfactorily in line with the terms of a set contract. The usual obligees for this type of surety bond are private owners, investors of a project, a municipality, and so on.
B. Payment Bonds
A payment bond is another subtype of contract surety bond that guarantees to subcontractors or suppliers that they will be paid for their work or materials respectively. The payment can be released by the time of the project’s completion or at another agreed date.
2. Commercial Surety Bonds
Commercial surety bonds are set up to ensure that a professional or business is compliant with legal requirements and/or licensing requirements while fulfilling a task or providing a service.
A. License and Permit Bonds
Typically, license and permit bonds are required by federal, provincial, and municipal governments from certain businesses that can pose a threat to consumers in the form of fraud, incompetence, physical damage, and malpractice.
This type of surety bond is usually required for contractors, travel agencies, auto dealers, liquor retailers, investment advisors, notaries, and so on.
B. Fidelity Bonds
A fidelity bond is yet another subtype of commercial surety bonds that are not typically required by the government for specific industries. A fidelity bond protects employers (the obligee) from fraudulent/dishonest actions done by employees (the principal) – along with consequent monetary losses.
This type of surety bond is most commonly carried by banks, brokerage firms, and insurance companies – however, other types of companies can have this set up in order to protect their assets and hold their employees accountable.
Who Can Benefit From Surety Bonds?
Ultimately, the beneficiaries of surety bonds are the obligees since they are provided with a guarantee of indemnification or compensation in case of illegal or unsatisfactory work. Typical obligees for surety bonds include:
- Customers, clients, project owners, investor, and so on
- Suppliers and subcontractors
Some industries are required to carry a fitting type of surety bond – so by doing so, they have the benefit of operating within industry regulations. A few examples of such industries include:
- Construction companies
- Manufactured housing companies/installers
- Investment advisors
- Collection agencies
- Auto dealers
- Freight brokers
- Notary public
- Travel agencies
We have helped numerous contractors, professionals, and various other businesses in securing surety bonds. If you’re still unsure about the type of surety bond that you should get or if you’re wondering if you need surety bonds at all, we’re here to assist you!
Why Is It Important for Ontario Contractors and Professionals to Have Surety Bonds Canada?
Though the obligees (the customers, the investors, the subcontractors, the employers) are the main beneficiary of surety bonds, the principals (the contractors, businesses, and employees) can also benefit from securing the right kinds of surety bonds for them.
Firstly, for industries that are required to secure surety bonds, the main benefit is that they are compliant with industry regulations. Furthermore, surety bonds can be mentioned in marketing efforts to boost customer confidence and encourage preference. Your business may win more customers, clients, and investors because they know you are bonded and they are protected – and this applies even for businesses that aren’t required to have surety bonds.
Lastly, surety bonds protect you from sudden financial loss in the event that a contract is breached, your business is caught without the needed license, and so on. Although surety bonds would require the principal to pay back the compensation, manageable payment plans are available with the right surety bond provider – all you really need is a trust-worthy insurance brokerage like Contractors Insurance to set up surety bond/s that fit your needs.
Surety Bonds Claims Examples
Claims Example #1
A client is dissatisfied with the work of your residential construction company because the contract was not followed. A claim is made against your performance bond.
Your performance surety bond will give compensation to the client worth $500,000. You can then repay the surety company with a manageable payment plan.
Claims Example #2
Your construction company is not able to pay your tiles supplier for an extended period because of a problem in your business. Your supplier makes a claim against your payment bond.
Your performance bond will give compensation to the supplier worth $140,000. You can then repay the surety company with a manageable payment plan.
Claims Example #3
A dishonest employee embezzles funds from your company and is on the run. An investigation is still ongoing but you’ve lost $50,000 and you’re uncertain if it will be recovered. You make a claim against the employee’s fidelity bond.
The fidelity bond will give you back the lost amount of $50,000.
Leading Provider of Surety Bonds in Ontario
As an award winning commercial insurance brokerage, we at Contractors Insurance take on a customer-centric approach in everything we do. In line with this, we strive to offer the following benefits.
Personalized, Expert Recommendations on Surety Bonds
Whether you are entrusting us with your business’s insurance needs or the need for any kind of commercial or contract surety bond, we have the experience and the expertise to make sure you get the best options for you and your business.
Utmost Transparency and Surety Bond Education
We choose to be proactively transparent with all our clients. If you opt to entrust us with setting up your surety bonds, we will discuss with you everything you need to know – from the coverage of your surety bond, cancelling a surety bond, and what to do when a claim is filed against your surety bond, the process of paying back a claim amount, and more. We will take away any guesswork so that you are prepared for anything.
Frequently Asked Questions About Surety Bonds Canada
The cost of surety bonds depends on the type of surety bond along with other pertinent factors. For example, a performance bond for a construction project will typically cost 1% of the project value. As for payment bonds, it would fall around 3% of the total coverage limit. For more details about pricing for other surety bond types, please feel free to reach out to us.
One of the key differences between surety bonds and insurance plans is that insurance claims do not need to be paid back by the entity who secured the insurance policy.
Meanwhile, the principal of the surety bond would need to pay back the surety company through a manageably payment plan if a claim is made against the surety bond by an obligee.
As discussed in an above section, there are only a number of industries that are required to have surety bonds. However, even businesses, professionals, and employees in industries that aren’t required to have surety bonds can still avail of surety bonds – in order to provide a guarantee to their obligee (e.g. clients, customers, investors, employers.)
Ready to Get the Coverage You Need?
Contractors Insurance is a leading insurance brokerage firm based in Ontario. We specialize in providing various businesses and professionals with tailor-fit insurance programs and surety bonds. Whatever industry you operate in, we can help!
With surety bonds, you will be able to adhere to any bonding requirements in your industry, boost customer/client confidence in your services, and more! We can match you and your business with the most compatible surety bond according to your needs and preferences.