As a contractor, you must have heard of performance bonds. They are vital documents without which no project owners would be willing to hire you. But what makes them so important?
Performance bonds guarantee owners that contractors complete a project on time according to the terms, conditions, and obligations mentioned in the contract. Businesses need a guarantee because any project involves a significant investment of time and money, which this document provides.
Contrary to many people’s perception, these bonds work differently from insurance. Unlike an insurance policy that provides you financial compensation during losses or damage, a surety bond company compensates businesses for not delivering their project on time.
You must repay the amount later under the terms of the Indemnity Agreement. However, these bonds are beneficial not just for businesses but also for contractors. Having them presents you as a reliable, experienced professional, helping you land more projects in the future.
What three types of bonds should you know about, and what documents are required to apply for them? Read to find out along with other essential information.
Types of Performance Bonds
These are of three types: CCDC, Form 32, and SAC Headstart Subcontractor.
Provided by the Canadian Construction Documents Committee, it is a standard surety performance from guaranteeing the fulfillment of a contract’s obligations by the owner. It is a one-page document.
All publicly funded companies in Ontario require these for contracts over 500,000 CAD. It was drafted by the Ministry of the Attorney General of Ontario after discussions and consultations with the Surety Association of Canada.
SAC Headstart Subcontractor
In this bond, the contractor becomes the obligee and the subcontractor the principal. It gives contractors two options to settle a claims resolution process during defaults by subcontractors, resulting in delays and losses in ongoing construction projects.
This bond is especially beneficial to the contractors because it hastens the claims resolution process. Under it, a contractor has two options: opt for the traditional Surety Controlled Completion Option or the Head Start Option.
Choosing the Head Start option allows a contractor to restart work on a project that has been delayed due to an ongoing investigation. It also helps them receive details of the claims process and a response within three days of the Notice of Claims letter issuance.
What Documents are Required?
Some of them include your company’s financial statements, contractor’s questionnaire (obtainable from your FCA advisor), copy of Banking Terms and Conditions, personal net worth, and a professional resume.
Besides the documents mentioned above, surety companies will also consider your capacity to complete a project, considering corporate and personal financial statements.
The approval process takes between 24 to 48 hours.
Best Way to Obtain these Bonds
You should consider hiring an experienced surety brokerage to obtain these performance bonds. They will help you find a surety company suited to your requirements, as brokerages are usually acquainted with many of them.
Before hiring a broker, you might consider asking them which surety companies they have worked with in the past and who their key partners are. They will act as the main point of contact between you and the company.
A surety broker fulfills additional functions, including reviewing your financial statements to know your bond limits, preparing a submission, filling out the forms, and negotiating with the surety companies regarding the indemnity, rates, and bond limits.
You should consider getting performance bonds as a bonded contractor as it will help you land more projects by projecting you as reliable and trustworthy before project owners. However, you should contact a bond broker to ensure the process is fast and hassle-free.