How to get bonded for public contracts in BC

Bonds are where a lot of small contractors stop reading a tender. You'll see them more on construction, paving, roofing and larger maintenance work than on cleaning or grounds contracts, but once your contracts get bigger, you'll need them. Getting bonded isn't mysterious. It just takes preparation, and it has to start before the tender you want.

What are the different bonds?

A bond is a three-way promise. The surety (a bonding company) guarantees to the obligee (the buyer) that the principal (you) will do what you promised.

• Bid bond (bid security): guarantees that if you win, you'll sign the contract and provide the other bonds. If you walk away, the buyer can claim the difference between your price and the next one, up to the bond amount. Often 10 percent of your bid price.
• Performance bond: guarantees the work will be finished according to the contract. If you default, the surety steps in to finish the job or pay. Often 50 percent of the contract value.
• Labour and material payment bond: guarantees your workers, subcontractors and suppliers get paid. Often 50 percent of the contract value.

Some tenders ask for a consent of surety or agreement to bond with the bid instead of the performance bond itself: a letter from your surety saying it will issue the bonds if you win. Some accept a certified cheque or other bid security instead of a bid bond. The tender spells out exactly what form it accepts. Follow it to the letter: the wrong form of bid security is a classic reason for disqualification.

Is a bond like insurance?

Not really. Insurance protects you. A bond protects the buyer and your suppliers, and if the surety pays a claim, it will expect you to pay it back. That's why sureties underwrite carefully and why they want personal or corporate indemnities from the owners.

What does a surety look at?

Sureties assess your ability to finish the work and pay your bills. Expect them to look at:

• Financial strength: financial statements (often prepared by an accountant, not just bookkeeping software), working capital, debt and profitability.
• Experience and track record: the kind and size of work you've finished, and references.
• Workload and capacity: what you already have on the go, and whether this job would stretch you.
• Management: who runs the business, how you estimate and track jobs, and your banking relationship.

How do I get a bonding line as a small contractor?

1. Find a broker who does surety. Not every insurance broker does. Ask other contractors in your trade who they use.
2. Get your financial statements in order. Year-end statements prepared by an accountant, plus current interim numbers, make the biggest difference.
3. Prepare a work history. A list of completed jobs with values, dates and client contacts.
4. Start small. Sureties typically set a single-job limit and an aggregate limit for all your bonded work. Both grow as you complete bonded jobs successfully.
5. Ask early. Getting a first bonding line can take weeks. Do it before you need a bid bond, not the week a tender closes.

What does bonding cost?

Bid bonds are often provided at little or no charge once you have a surety relationship. Performance and payment bonds are priced as a small percentage of the contract value, set by the surety based on your risk. Ask your broker for the rate before you price the job, and include it in your bid.

How does this connect to holdbacks?

On construction and improvement work in BC, the Builders Lien Act requires a 10 percent holdback, kept until 55 days after completion. That's separate from bonding, but both affect your cash flow on bigger jobs. Getting paid on public contracts covers the cash side.

Where to go next

Tender words in plain English defines the other terms you'll see alongside bonds. If bonding is the barrier right now, subcontracting is a way to get public work and references while you build up to it.