Bonding in Construction Contracts

Surety bonds have a very important function in the construction industry, although they are often misunderstood by the individuals who enter into them. Whether you’re a contractor or a client, we can provide you with information on surety bonds and help you through the process.

While many questions can be answered with the help of the guides, sample letters and forms in our legal toolkit, an independent jurist affiliated with PSP Legal will always be happy to help you by answering any questions you may have.

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Of course, if you prefer to have an experienced practitioner take charge of your situation and intervene directly and quickly on your behalf, you can also request that one of the independent jurists affiliated with PSP Legal represent you by clicking here.

Surety bonds

The surety bond mechanism is provided for in article 2333 of the Civil Code of Quebec. It consists of a contract involving three people: the surety, the bonded party and the beneficiary. Generally speaking, the purpose of construction contract bonds is to assure the customer of the faithful performance of the obligations of contractors and their subcontractors.

This legal mechanism acts as a safety net for large-scale, complex construction projects, such as those entrusted by the government. This mechanism enables the creditor to enforce the terms of the contract. In the event of a default, the surety will support the bonded party, either by completing the work the latter has started, or by paying for labor and materials. However, the fact that the bond covers the costs stipulated in the contract does not necessarily mean that the surety is released from all his obligations. Unlike an insurance indemnity plan, the surety will eventually have to repay the surety the full amount of the bond that the surety has derailed to come to the surety’s rescue.

Types of surety bonds :

Bid bonds are designed to prevent the contractor from submitting bids that are too low or that he is unable to meet. The bond guarantees that the contractor who submits his bid is ready, if selected, to sign the contract of enterprise, for the entire duration of the call for tenders;

The performance bond is an undertaking to carry out or have carried out the work for which the contractor has signed up, should the latter fail to meet his commitments once the contract has been signed and the work begun;

The maintenance bond guarantees the client that the work and construction will be free of defects;

The legal hypothec substitution bond comes into play when a workman, subcontractor or material supplier has not been paid by the contractor and registers a legal hypothec on the building in question. Article 2731 of the Civil Code of Québec allows this party to apply to the Court to have the hypothec replaced by an equivalent and sufficient guarantee;

The labour and material payment bond protects the client against legal hypothecs that could encumber the building following completion of the work, should a contractor fail to pay his subcontractors, workers and material suppliers. They are the only beneficiaries of this type of bond.

When do you need a surety bond?

It’s important to know that surety bonds are not insurance contracts, and cannot replace business insurance. Rather, surety bonds should be seen as insurance for the customer.

There is no legal requirement for a contractor to have a surety bond. However, certain types of public projects are generally backed by financial protection measures. The three types of contract most often protected by surety bonds are :

• public or private construction contracts
• service contracts
• public-private partnership contracts.

How we can help

Our legal toolkit includes a variety of online resources and links to templates and guides to help you better understand your obligations.

However, should the Legal Toolkit prove insufficient in your situation, you can obtain additional assistance by speaking with one of PSP Legal’s affiliated jurists:

• Online

• On the phone

• In person

Of course, if you prefer to have an experienced practitioner handle your situation, you can always request that one of the independent jurists affiliated with PSP Legal intervene on your behalf by clicking here. He or she will then be able to intervene directly and rapidly on your behalf by:

• Preparing, negotiating and drafting applications, procedures or any other legal documents related to your situation;
• Assisting and advising you on your legal rights and obligations;
• Representing you before the courts when legal action is taken;
• Guiding you through the choices available to you, leading to a fair and satisfactory solution.

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