When bidding for jobs, you might have prospects ask if you are bonded. You might also find once the question is asked and the answer is no, it usually ends up costing you the job.
Being bonded helps you secure more clients and grow your business because when bonded, you can guarantee your work will be completed. In an age where fly-by-night contractors are a dime a dozen, bonded companies provide peace of mind to customers.
Surety bonds allow contractors to financially compensate clients if they cannot complete the work they were hired to perform. You know more than anyone that there can be many scenarios that could interfere with a project’s completion.
When a client knows you are bonded, they know the surety company will pay them the money they need directly, to complete the project should the job fall through with you. Here’s a breakdown of the types of surety bonds available in Calgary and how they help you get larger clients.
Surety Bonds versus Insurance
The difference between being insured and being bonded is that a bond acts as a financial guarantee the job will be completed. When an issue occurs, your surety company deals with whatever the issues are in completing the work under the contract. You then must pay back the surety company. That’s why being bonded holds so much weight with potential clients. Clients know you are on the hook financially should anything go wrong. A surety bond differs from your business insurance because:
- It involves three parties: you, the surety company, and your client (known as the obligee)
- Unlike insurance, you must pay the money back to the surety provider
While it doesn’t guarantee your performance will be ideal, it does guarantee the work will be completed. Combine being bonded with high online ratings and reviews, and you become highly desirable to new clients and larger budgeted jobs.
How Do Surety Companies Work?
When a surety company bonds a contractor, they do so only after performing a thorough investigation. They establish the contractor’s credibility looking into your business reputation, the number of jobs completed, your history and other details that show you are trustworthy and financially stable. This shows potential clients you can be trusted.
How Being Bonded Works
The surety company provides your clients with the value of your bond limit should a job not be completed. It can be paid out in dollars, or it can be in work equivalent to what you were hired to do.
As mentioned, once the bond is paid out, you then must repay the surety company. This indicates to a client that you feel very confident you can complete the job because you won’t want to be put in a position to pay the surety company.
Types of Surety Bonds
There are three types of surety bonds:
- Contract surety bond
This bond guarantees the obligations of a construction contract/project will be met.
- Commercial surety bond
This guarantees all work will comply with required codes, best practices and standards operating under the required licenses.
In the case of contracting and construction companies, the contract surety is most common. It is ideal for covering potential costs remaining should you be unable to complete the project based on the conditions and terms outlined in your contract.
What types of bonds are awarded to the client?
To reduce financial loss due to incomplete work clients most commonly receive:
- Performance Bonds to guarantee you will perform all obligations.
- Labour and Material Payment Bonds to guarantee you will ensure your subcontractors and suppliers are paid.
During the bidding process on large projects, A Consent of Surety or Agreement to Bond is often also used to provide proof you will be able to acquire further bonds to cover the project should you win the bid.
How does being bonded help my company?
When you’re in the bidding and tendering process and can’t provide proof of being bonded, you become less trustworthy in the eyes of larger clients. Because being bonded helps establish you are financially sound and trustworthy, larger clients are more apt to sign with the companies that are least likely to cause them financial strain or lead to delays in their projects.
When you use a Consent of Surety during the tendering process, you present an even higher level of professionalism and trust and show prospects you take every bidding or tendering process seriously.
How much do surety bonds cost?
There is no such thing as a flat rate when it comes to bonds. They are as unique as the projects you take on. It also depends on the surety company and what you wish to cover.
The basics considered by the surety company would include:
- Bond type
- How long the bond obligation will last
- Overall bond value
Much in the way things such as your financial history and credit score are considered for a loan, these factors in hand with other considerations such as your business revenue, experience, licenses held and your perceived ability to complete the bond obligation are all considered.
Who can help me find the best surety bonds?
Our insurance brokers can provide advice and help you find the bonds you need, including:
- Administration or Fiduciary Bonds
- Bid Bond
- Contract Bonds
- Employee Fidelity Bond
- Fidelity Bonds
- Labour & Material Payment Bond
- Licence & Miscellaneous Surety Bond
- Lost Securities Bond
- Named Scheduled Fidelity Bond
- Performance Bond
- Service Bonds
- Surety Bonds
We can help you work through what is required and what will help improve your credibility with higher-profile, higher-paying clients.
Coverage is subject to policy wording, terms, conditions, and deductibles. Protection is limited to the perils, coverage, exclusions, and limits shown on the policy.