The bond lifecycle of a construction project
Think of bonds as attached to stages, not to the contractor in general.
| Stage | Bond or document | Protects | Typical amount |
|---|---|---|---|
| Pre-qualification (RFQ) | Pre-qualification letter | Owner shortlisting | Not a bond |
| Tender | Bid bond and consent of surety | Owner, if the low bidder walks | Bid bond 10% of the bid |
| Award | Performance bond | Owner, if the work is not completed | 50% of the contract (sometimes 100%) |
| Award | Labour and material payment bond | Subtrades and suppliers | 50% of the contract |
| Completion | Maintenance bond | Owner, for defects in the warranty period | Set by contract, often a share of contract value for one to two years |
| Development | Subdivision and developer bonds, Tarion bonds | Municipality or warranty program | Set by the municipality or program |
How to read a bond clause in a contract
Find the section headed bonds, security or contract security. It should tell you four things: which bonds are required, the percentage of the contract value for each, the form (CCDC 221 and 222, an owner's own form, or a prescribed provincial form), and when they are due, usually within a set number of days of award. If any of the four is missing, ask the owner before bid day. If the form is non-standard, send it to us. Wording differences change what the surety is agreeing to.
Maintenance bonds
A maintenance bond guarantees the contractor will fix defects that show up after the work is accepted, for the period the contract sets. Many performance bonds already run through a one-year warranty period, so a separate maintenance bond usually appears when an owner wants longer coverage or a specific amount after handover. Municipal servicing and roadwork are common examples.
Subdivision, developer and Tarion bonds
Developers face their own bond requirements. Municipalities require subdivision or site improvement security before releasing a plan, to guarantee that roads, sewers and services get built. Ontario's new-home warranty program requires security from builders. These are commercial surety instruments rather than contract bonds, with their own underwriting, and we place them alongside the contract program. See developer bonds and Tarion bonds.
Bonding capacity: single job and aggregate
When a surety approves a contractor, it sets two numbers: the largest single job it will bond, and the total bonded work the contractor can carry at once. Both come from the file, chiefly working capital, net worth, the work-in-progress schedule and the largest job completed. Capacity grows as the balance sheet and the track record grow. If your client is being asked to bid work well above anything it has finished, that is the conversation to have early, because it shapes the whole program. We set capacity per contractor and do not publish limits.
Bonds and the insurance program
Bonds do not replace builders risk, liability or wrap-up coverage, and a bond clause often sits beside an insurance clause in the same contract. Read both. Approved places construction insurance for the same clients: builders risk, residential course of construction and specialty contractors liability. One file, one submission inbox.
