Why is Surety Bonding Required?
Why All Canadian Contractors Need A Surety Bond
Canadian contractors and business owners are regulated strictly by a wide assortment of different laws. This can make it very nerve-racking for many business owners. Nonetheless, these individuals will eventually need to familiarize themselves with the Surety Bond and its cost. It is truly an essential part of business within the country of Canada. Still, a lot of Canadian contractors will not see the importance of the bond. Within this guide, you will learn precisely why the surety bond is a necessity and why you should get bonded as soon as possible.
Stay Out Of Court
As a construction contractor, you should understand how important it is to stay out of court. If your client files a lawsuit against your company, you can expect that lawsuit to drag on for many years. And of course, the costs will compound very rapidly. It is best to solve problems outside of the courtroom and this is where the surety bond will enter the picture. The surety issuer will step in and attempt to mediate between the client and the contractor. By working directly with the surety company, it is possible that you’ll be able to solve the problem, without going to court.
This will prove to be very beneficial and will help you save money in the long run.
Leveraging With The Bond
Another thing to remember is that contractors do not have an endless supply of money. In fact, you probably do not have the total amount needed to obtain the bond on your own. This is why it is a good idea to utilize the services of a surety issuer. This company will be able to provide you with leverage, so you can obtain the bond, without using your own money. Instead, you will be required to pay a small percentage of the total and the issuer will cover the rest. As long as you are able to complete the project on time and without any problems, the risks will be minute.
Better Than A Letter Of Credit
While some contractors will prefer a letter of credit, it is undeniably true that there are numerous benefits associated with the surety bond. With the surety bond, it is not necessary to put up collateral. At the same time, it should be known that the surety bond is more comprehensive than the letter of credit. There are some aspects that are covered by the surety bond that are neglected by the letter of credit. Therefore, it is generally best for the contractor to opt for the bond.
Reinforces Industry Regulations
The Canadian government has set a surety bond requirement, which is included in the licensing process. Not all companies are required to obtain a business license and in this case, the business owner will not be able to get bonded and licensed. However, all general contractors are required by provinces and territories throughout the country to obtain a contractor license bond. The contract bond guarantees your job performance on a specific development project and reinforces industry regulations.
Bidding On A Project
As a contractor, there will come a time when you have to bid on different projects. However, before you can bid on any project, you will be required to obtain a bid bond. This bond basically guarantees the project owner that you have the resources and finances to complete the project, as it is laid out in the contractual agreement. Most of the time, a project owner doesn’t even know if the contractors bidding on the job are financially stable and reliable enough to complete the work. This is where the bid bond will come into play. In the event that a contractor bids on a job that his company cannot possibly complete or tries to change the bidding price, the project owner can file a claim and receive compensation. So, the bond provides your clients with reassurance and peace of mind. This is something all Canadian businesses love to provide to their customers!