The Surety Association of Canada is raising the alarm about the introduction of new public policy for procurement in the province of Newfoundland and Labrador, which changes, and in some cases eliminates, the use of bid bonds guaranteeing contractors will make good on their promise to enter into a contract with all the requisite financial instruments in place.
Specifically, bid bonds in procurement are a financial instrument which guarantees that the contractor putting in the bid for work will enter into a contract and provide the subsequent required bonds needed to guarantee performance and payment on the project. Should a contractor fail to enter into the contract, the province can claim under the bid bond for the difference between that bid and the next lowest bid. In Canada, Steve Ness, president and chief operating officer of the Surety Association of Canada says about $1-billion in premiums were written for bid bonds across the country in 2023. The actual value of the construction projects being bonded is estimated to be in the hundreds of billions.
“Misleading or completely false”
In writing the policy, outlined in the publication Newfoundland and Labrador First: A Strategy for Supporting Newfoundland and Labrador Businesses through Procurement, however, Ness says of the paragraphs dedicated to the subject of bid bonds, only one line was true. “Everything else was either misleading or completely false,” he says. Ness discussed the policy and the lobbying work the association is doing to correct certain assumptions.
While the bonds may still be removed for certain service contracts, Ness says the government has agreed that the policy is not going to apply to construction projects. The association plans to sit down with government representatives in mid-May to provide a primer on how bonds work, their role in the construction business and how they protect taxpayers.
A fundamental misunderstanding
In addition to a fundamental misunderstanding about what bonds are and how they work, he says assertions that requiring the bonds prevents small businesses from bidding on multiple projects are also false – bid bonds are free to any company with a bond facility. (Bonding companies make money on the subsequent obligatory performance and payment bonds that are usually required.)
“If mom and dad construction up in Corner Brook wants to bid on a job to build a $2-billion hospital, they may not be able to secure a bond,” Ness says, but adds that “any contractor in the country, particularly those who are going to be bidding on public work will have a bond facility. That goes with the territory. It’s required on almost all public work across the country, in every province.”
