Specialty Surety Bonds in Canada
If you need a surety bond that isn’t a bid bond, performance bond, or standard commercial bond, you’re probably looking for a specialty bond. These cover court-ordered obligations, estate administration, customs compliance, licensing requirements, and more.
Here’s a breakdown of the most common types, what they cover, and when you need one.
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Maintenance Bonds
Maintenance bonds guarantee to the project owner, or “Obligee”, that the contractor or Principal (Contractor) will maintain the project and correct any defective workmanship after the project has been completed based on the agreed terms of the contract for a specified period of time.
The manufacture’s warranties should be limited by the installer to one year of general bonded maintenance which covers not just inherent defects but gives the owner a guarantee from the installer of proper installation. Most performance bonds cover this initial full warranty under a contract clause called bonded maintenance that includes one year from date of substantial completion.
Occasionally contracts require extended bonded warranties. The option to extend bonded maintenance to 2 or 3 years is available either by endorsing the performance bond or by replacing the performance bond after substantial project completion with a maintenance bond. Most often the performance bond is endorsed and an additional fee is charged at the time the bond is issued.
A maintenance bond requested prior to completion of the installation will be underwritten as a performance bond. These maintenance bond “only” situations are rare – but a specialist Surety Broker is qualified to deal with these non-standard requests.
Completion Bond
A Completion Bond is a financial instrument that insures that projects of all sorts are completed, even if the owner or borrower runs out of available funds. Completion Bonds are a common tool used to secure a mortgage for a major building project. As part of the loan/financing agreement, both the mortgagor and the mortgagee are protected in the event of financial reversals. The bond ensures that the building will be finished to a point whereby the asset can be sold and, at minimum, the investment amount recouped from the venture.
Completion Bonds are also well known in the world of entertainment. Because of the high cost associated with producing a motion picture, a Completion Bond help protects investors, even in the event the unforeseen occurs, the resources will be available to complete filming, editing and the release of the production.
Supply Bonds
Supply bonds provide security to the project owner, or “obligee”, that certain materials will be delivered by the supplier or “principal”, according to the terms of the contract. Should the supplier default, the surety will underwrite the purchaser of the supplies against any loss. The conditions of supply bonds are similar to performance bonds except that the obligation is for supplies only.
Supply bonds may include extended warranty or maintenance conditions and may often be for extended periods of time. Contracts for these longer periods require unique underwriting; therefore, on larger and longer contracts where delivery, warranty efficiency and delay penalties are more demanding, the help of a surety expert is critical.
In addition – many supply contracts involve foreign buyers who want assurance that Canadian suppliers can deliver. If the product has unique qualities that no other supplier can duplicate – the surety requirements will be more demanding since it will be more difficult to negotiate alternative suppliers in the event of a default.
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