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Contract Bonds

Several clients require a guarantee from contractors as part of the various calls for tender processes or as an essential condition of several contracts which are awarded. These guarantees are required most frequently in the construction sector, but may also need to be provided in other sectors.

 

The required guarantees can take several forms, including in particular:​​

certified check

bank letter of credit

bonding 

What is Bonding?

Bonding, in short, the commitment made by a person to ensure compliance with the obligations of another person towards a third party. This is an endorsement on the part of the guarantor of the obligations incumbent on the guarantor company. The main types of documents that are requested by clients from companies that have access to a bond facility are as follows:

  • Submission bond
    The purpose of the submission bond is to guarantee the good faith of the contractor during the tender process. This bond stipulates that, if the contractor is chosen, he will conclude a contract within the deadlines provided for in the call for tenders with the client. This bond actually constitutes a selection instrument.
  • Engagement letter
    The letter of intent is usually filed with the bid bond and stipulates that the surety undertakes, if the contractor signs a contract with the client, to issue performance and payment bonds for labor and materials, if required by the latter.
  • Performance bond
    Allows the client to be guaranteed execution of the contract, in accordance with its provisions. Therefore, we understand that, if the provisions are not respected by the contractor, the client may request the intervention of the surety, by virtue of this bond.
  • Payment for labor and materials
    This bond protects the contractor's suppliers and subcontractors in the event of the contractor's failure to pay for the services they have rendered. If the Contractor does not make payments to its suppliers and/or subcontractors, the latter will have recourse to the surety for their payment, under this bond.
  • Maintenance deposit
    This type of bond is usually provided in exchange for the release of the contractual holdback, and guarantees the owner that the contractor will correct any defect, omission or faulty workmanship, for the warranty period, starting from the provisional or final acceptance of the work. If the contractor does not correct the defects during this guarantee period, the client may request the intervention of the surety, under this guarantee.
  • Demonstrate a guarantee of solvency to the client
    The Guarantors have minimum subscription standards in order to open a bond file and carry out punctual financial monitoring with the bonded entrepreneurs. In this sense, in the eyes of a client, the support of a guarantee towards a contractor offers certainty as to the financial health of the latter.
  • Reduce pressure on company liquidity
    When you provide a bond as a guarantee to your client, no amount has to be kept by your financial institution or be given directly to the client, as is the case in particular in using a certified check or bank letter of credit.
  • Better control of the warranty offered
    The bank letter of credit or certified check which can also often be used in the context of tenders can be cashed on request by the client. In opposition, a surety will only take up the cause in the context of a request for intervention in cases where the contractor is truly in default or is in particular incapable of carrying out a project.
  • Having a partner in the event of a dispute over bonded projects
    The majority of sureties have an in-house litigation department which offers support to its clients in the event of a dispute with a client.

The Advantages of Being Bonded

  • Submission bond
    The purpose of the submission bond is to guarantee the good faith of the contractor during the tender process. This bond stipulates that, if the contractor is chosen, he will conclude a contract within the deadlines provided for in the call for tenders with the client. This bond actually constitutes a selection instrument.
  • Engagement letter
    The letter of intent is usually filed with the bid bond and stipulates that the surety undertakes, if the contractor signs a contract with the client, to issue performance and payment bonds for labor and materials, if required by the latter.
  • Performance bond
    Allows the client to be guaranteed execution of the contract, in accordance with its provisions. Therefore, we understand that, if the provisions are not respected by the contractor, the client may request the intervention of the surety, by virtue of this bond.
  • Payment for labor and materials
    This bond protects the contractor's suppliers and subcontractors in the event of the contractor's failure to pay for the services they have rendered. If the Contractor does not make payments to its suppliers and/or subcontractors, the latter will have recourse to the surety for their payment, under this bond.
  • Maintenance deposit
    This type of bond is usually provided in exchange for the release of the contractual holdback, and guarantees the owner that the contractor will correct any defect, omission or faulty workmanship, for the warranty period, starting from the provisional or final acceptance of the work. If the contractor does not correct the defects during this guarantee period, the client may request the intervention of the surety, under this guarantee.
  • Demonstrate a guarantee of solvency to the client
    The Guarantors have minimum subscription standards in order to open a bond file and carry out punctual financial monitoring with the bonded entrepreneurs. In this sense, in the eyes of a client, the support of a guarantee towards a contractor offers certainty as to the financial health of the latter.
  • Reduce pressure on company liquidity
    When you provide a bond as a guarantee to your client, no amount has to be kept by your financial institution or be given directly to the client, as is the case in particular in using a certified check or bank letter of credit.
  • Better control of the warranty offered
    The bank letter of credit or certified check which can also often be used in the context of tenders can be cashed on request by the client. In opposition, a surety will only take up the cause in the context of a request for intervention in cases where the contractor is truly in default or is in particular incapable of carrying out a project.
  • Having a partner in the event of a dispute over bonded projects
    The majority of sureties have an in-house litigation department which offers support to its clients in the event of a dispute with a client.
Étude de plan par les ingénieurs

How to Obtain Security?

In terms of suretyship, insurers who act as Surety are based on a specific risk in order to establish a file. Just like a bank that wishes to grant you credit facilities, the guarantor wants to know the financial health of your company and its shareholders.

 

The surety also wants to ensure that the contractor has the expertise, reputation and skills necessary to carry out his various projects. It is also important to know if the latter is strong enough to cope with a loss on a project or if he has the credit facilities necessary to finance his activities. Each guarantor uses their own underwriting criteria, but several guidelines are common.

 

Other elements can also be considered depending on the sector of activity, the type or the scale of the projects on which a contractor wishes to bid. These same elements also come into play when it comes to establishing the conditions of a file or making the decision to endorse an exceptional project for an entrepreneur.

 

In short, the conditions that will be offered will depend on a set of factors. The business relationship and trust between a surety and a contractor is at the heart of the decisions taken when it comes to authorizing a large bond application.

Why Choose Cautionnement Expert?

Our company stands out by dedicating its activities exclusively to Surety Bonding. We therefore have the expertise and skills to fully understand your needs. Our team will analyze the financial situation of your company before presenting your file to a guarantor and will be able to help you highlight the specificities specific to your company which will present it in its best light in the eyes of a guarantor.

 

Our team will also support you to ensure that the relationship of trust between you and the guarantor develops harmoniously to be certain that the conditions attached to your file evolve organically and that they are the best based on the market. Our diversified clientele includes a pool of entrepreneurs and several comparisons which allow us to obtain optimal conditions.

 

Beyond understanding the elements specific to your business, our financial analysts from diversified sectors will also be able to support you on a daily basis and have a deep desire to act with you as a privileged advisor to support you in your development projects, and growth.

 

Whether it's to help you understand the implications of a quote or a project on your guarantee facilities, to support you in the context of an intergenerational business transfer or to support you when it comes to obtaining a bond for an exceptional project important to your company, our analysts can advise you!

Why Cautionnement Expert?

By doing business with Cautionnement Expert, you will benefit from, among other things, the following advantages:​

In-depth Knowledge of the Construction Field

Multidisciplinary Team Specialized in Surety Matters

Complete Internal Financial Analysis of the File

Knowledge of Insurer Underwriting Standards

Negotiating Power with Insurers

Advisory Role to Meet Your Bonding Needs, and Even More!

Contact An Advisor

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