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Bid Bonds in Canada: When and Why It is Required, How to Get It, and More

by Monica Barnes
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Canada is a country in North America covering 9.98 million square kilometers, making it the world’s second-largest country by total area. The construction industry is an essential economic driver for Canada and an indicator of the strength of the nation’s economy. This sector is responsible for constructing and maintaining infrastructure, housing, and commercial buildings.

Bid Bonds in Canada: When and Why It is Required, How to Get It, and More

The Canadian government has put several measures to ensure the construction industry is well regulated. One of these measures is the requirement for contractors to obtain a bid bond when bidding on government projects.

If you are a contractor or supplier doing business in Canada, there’s a good chance you’ll need to obtain a bid bond at some point.

But what is it? How do you get a bid bond Canada? And why is it required? This article will answer all of those questions and more.

What is a Bid Bond?

A bid bond is a surety bond often required to bid on specific projects. The purpose of the bid bond is to protect the owner or entity awarding the project from any financial loss if the contractor bidding on the project fails to follow through with their bid. In other words, it acts as a type of insurance for the owner.

How Does a Bid Bond Work?

Canada’s construction sector employs over 1.3 million people and accounts for approximately seven percent of the country’s gross domestic product. Hence, the government has put in place several measures to protect the interests of all parties involved in construction projects.

If a contractor is awarded a project, they must sign a contract agreeing to complete the work for the bid amount. If the contractor fails to do so, they may be held liable for any difference in cost incurred by the owner to find another company to complete the work. To protect the owner from this financial loss, the contractor must provide a bid bond.

A bid bond guarantees the bidder will enter into a project’s contract and perform the work according to the terms and conditions set out in the bid documents. If the contractor cannot pay, they will forfeit the bond amount to the owner.

A surety company typically issues these bonds, and the premium is a percentage of the total bond amount. The most common bond amount is five percent of the total bid.

Steps to Apply for Bid Bonds

Applying for bid bonds is a process that involves working with a surety company. Here are the steps:

1) Determine the Bid Bond Percentage

The first step is to determine the bid bond percentage. The project owner typically sets the bid bond percentage, ranging from five to ten percent of the contract’s total value.

2) Find a Surety Company

The next step is to find a surety company willing to provide the bid bond. The surety company will evaluate the applicant’s financial history and creditworthiness to determine if they are a good candidate for the bond.

The surety company will provide a bid bond percentage quote if the applicant is approved.

3) Fill Out the Application

The applicant will need to fill out an application and pay the required fee.

After the surety company approves the application, they will provide the bid bond.

Now that you know the steps involved in applying for bid bonds, you can start the process of securing one for your business.

Tips to Find the Best Service Provider

While looking for the best provider for your bid bond needs, you should consider a few things. Here are a few tips:

  • Make sure the provider is licensed in Canada
  • Ask about the minimum and maximum bond amounts that they provide
  • Find out what their turnaround time is for processing bonds

Final Thoughts

Whether you are a construction company owner, general contractor, or subcontractor, you may need a bid bond in Canada at some point in the bidding process.

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