Surety Bonding

Contractors involved in public tendering usually are requested to post security, guaranteeing the performance of their contractual undertakings – Surety Bonding. The Bonds provides the project owner with the financial assurance that the contractor is able to perform and respond to all the conditions stipulated in the contract and has the necessary skills, manpower, equipment and financial resources to complete a project on time and within the stipulated contract price.

There is a thorough underwriting review by the Surety Company called the pre-qualification process. It considers all of these factors and if acceptable provides the joint financial undertakings with the contractor to an owner, usually in the form of a Performance Bond and a Labour & Material Payment Bond (LMP) for successful contracts you have bid on. These types of bonds are called Contract Bonds.

Once qualified, the Surety Company will set a limit of exposure based on the dollar value of projects underway. Initially, the limits will be conservative. Over the course of time as the Surety becomes more familiar with your operation, larger limits may be approved.

At the point of tendering a contract bid you will likely be requested to provide a Bid Bond and Consent of Surety within your tender package. These documents essentially assure the owner of the project of your capacity to undertake the project if awarded. It is important to remember as part of your initial workup on any project requiring bid bonds to request them at an early phase. The last thing we want to occur is a missed tendering as a result of forgetting to request your bid bonds early enough to allow for their preparation. In the normal course a client should allow sixty to ninety days to set up their Surety Bonding facilities.

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There is a substantial amount of work involved in the initial assessment. In order to perform this assessment the Surety will require the following information:

The contractor’s last three-year end financial statements for all affiliated companies.

A completed Contractor Information form.

Personal Financial Statements from all principals and spouses including full names and addresses (one per person).

The names of Associated or Subsidiary Companies or other companies controlled by any or all of the Principals of the subject firm, and copies of their financial statements.

If 1 and 4 above involve more than two companies a consolidated or combined financial statement including all companies, prepared by the contractor’s chartered accounting firm.

A Bank Report Form - your account executive from your bank will complete this.

A Work On Hand Report. “Work On Hand” means “all work (cost-to-complete) for which the contractor has a contractual liability – bonded or not bonded"*.

Resumes of principals and key employees.

A list of outstanding tenders (jobs already bid for which they do not know if they were the un-successful tenderer).

Outstanding tenders on which they know they were the low bidder – whether yet awarded or not.

Projects awarded, but not yet started – the contract value.

Projects started and not completed – the “cost-to-complete” amount.” This definition is applicable to work which has a requirement for bonds, or does not have a requirement for bonds.

Note: ”Bonded” is “any work – awarded, tendered and low and not yet started, or tendered and outstanding as to if they will be awarded – which has a bond requirement, whether or not bonds have already been issued. It does not mean only work on which bonds have actually been issued.”

As you can see there is substantial amount of time and effort required to prepare the information needed. However, the first run through is the worst and once completed it runs smoothly. We recommend assigning one person within your organization to have key responsibility for handling your ongoing bonding requirements. This person should have full knowledge of your operations, requirements and project status.

We hope this information is helpful. We are sure you will have questions in the course of preparing the documentation. Please Contact Us if we may be of assistance.

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Surety Bonding