Did you know that if you’re planning on working as a contractor in Canada, you may be required to get a construction performance bond? It’s true! In some provinces, if you’re going to be working on a large construction project, the government may require that you get a construction performance bond.
The questions of what is performance bond, types of construction bonds, and how to get a construction performance bond are important for any contractor to answer.
What is a Performance Bond?
According to the Canadian Construction Documents Committee, a performance bond is “a guarantee by a surety, on behalf of a contractor, to pay the owner an amount not exceeding the premium if the contractor fails to perform its obligations under the contract.” In other words, it’s a type of insurance that protects the government or other entity hiring the contractor if the contractor fails to complete the project or meets the contract’s requirements.
Factors to Consider:
Now that you know what a performance bond is, consider the following factors when getting it for your project:
- The Amount:
Often, the bond amount will be based on a percentage of the total contract value. For example, if the total contract value is $100,000, the bond amount may be 10% or $10,000. It’s important to ensure you get a surety for the right amount to avoid potential problems.
- The Term:
The term is also something that you will need to consider when getting a contract bond. This is the length of time that will be in effect, and it’s vital to ensure that it is the correct length. For example, if the project is going to take two years to complete, you will need to get it for two years.
- The Premium:
The premium is the amount you will need to pay for the bond. You must make sure you shop around and get the best rate possible. For example, if it is for $10,000, you may need to pay a premium of $500.
- The Collateral:
Another thing to remember is that the surety company may require collateral as a security for issuing the surety bond.
- The Claim Process:
It’s also important to know how the claim process works. The government or other entity hiring the contractor can claim the bond if the contractor fails to meet the contract’s obligations. The surety company will then investigate the claim, and if it is valid, they will pay out the claim.
- The Financial Strength of the Surety Company:
Finally, you will also need to consider the financial strength of the surety company. This is important because you want to ensure that the company can pay out any claims on the bond.
Different Types of Projects Require Construction Bond:
- Federal Projects: If you’re working on a project funded by the federal government, you will usually be required to get a construction surety.
- Building Permits: In some cases, you may be required to obtain a building permit. This is usually the case for larger projects.
- State Projects: If you’re working on a project funded by the state, you may be required to get it.
- Local Projects: In some cases, local governments may require bonds for construction projects.
- Private Projects: Bonds are not always required for private projects but may be required in some cases.
So, these are some crucial factors you need to consider. Many well-known companies in the insurance and surety bond industries offer construction bonds. They can assist you in obtaining the bond you require for your project.