Construction Surety Bonding

At Method, we take the time to understand the intricacies and risks associated with your business to ensure your construction company is ready to take on any surety bonding requirements in the construction industry. Our expertise allows us to ensure that your organization is in compliance with a surety bonding program that covers your business needs. Our relationships with the insurance service industry will facilitate your business growth and allow your company to prosper during changing economic times. With increased competition in the construction industry comes the need for optimized business solutions that have both an immediate, and long-term impact on your business.

Throughout our tenure in the surety bonding industry, we have developed close relationships with several carriers who have the experience to establish a bonding program that help your organization navigate any future business opportunities.

The goal of our surety bonding program is to help you:

• Secure Larger Jobs – We help contractors restructure their financial reports and distribution of capital to make them more desirable to the bonding market allowing the company to bid on large-value jobs.

• Increase Bond Capacity – We provide the knowledge and education to help our clients understand to effectively manage their financials in order to increase their current bond capacity allowing our client to bid on more jobs, successfully.

The most commonly used bonds for construction projects include:

• Bid Bond

• Consent of Surety

• Performance Bond

• Labour and Material Payment Bond

Bid Bond

This bond is submitted to the owner with your tender at the bid stage. The purpose of the bid bond is to ensure that the successful bidder enters into the construction contract and, if required, delivers a labour and material and/or performance bond. The bid bond provides financial assurance to the owner that the tender is submitted in good faith. It also provides assurance that the contractor intends to fulfill all obligations outlined in their tender should they be successful in their bid.

Consent of Surety

This bond is also submitted at the bid stage. The consent of surety (often called agreement to bond or undertaking of surety) is a commitment by the surety company to provide the required performance and labour & material payment bonds as specified in the tender documents.

Performance Bond

Performance Bonds provide the owner with protection ensuring completion of the contract in the event of default of the contractor. The cost of hiring another contractor is not always simple to calculate or recover and the owner could be left to cover the costs. This bond guarantees the contractor will perform their obligations to the owner as specified in the terms and conditions of the contract. The performance bond protects the owner from a financial loss should the contractor fail to perform.

Labour and Material Payment Bond

Labour and Material Payment Bonds ensure that the contractor’s outstanding payables for labour and materials, supplied under the bonded contract, are paid as described in the bond, thereby reducing the likelihood of liens and construction schedule delays. Labour and material payment bonds are issued in conjunction with a performance bond and guarantee the contractor will pay eligible sub-trades, labourers, and material suppliers associated with the project. The labour and material payment bond usually incorporates the contract between the contractor and the owner, and it specifies a liability limit.

How do Construction Companies Obtain Bonding?

A bonding company assesses a number of factors to determine whether a contractor is likely to succeed in meeting its contractual obligations. In other words, a contractor must qualify for a bonding program. If a contractor does not qualify, no bonds are made available. Beyond the basic information, each bonding company has its own assessment criteria. However, all of them look at the four basic “Cs” of surety:

• Character

• Capacity

• Capital

• Collateral

As a starting point, the bonding company usually requires the following confidential information from the construction firm:

• Background about the firm, including ownership, related companies, type and size of projects previously completed, previous suppliers, and subcontractors

• Details about their line of credit

• Details about the current work they are undertaking

• Financial statements for the last 3 years

• Personal financial statements of the firm owners

At Method we have strong relationships with the leading construction insurance, bonding, and surety providers in British Columbia and can help your organization navigate through this process well in advance of biding any bonded projects. There is a great deal of preparation work required in setting up a proper surety and Method can help support your long term business objectives.

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