Risk & Business Magazine Gillons Insurance Spring 2016 | Page 26

The Benefits of Construction Bonding Increase Your Chances of Landing Construction Contracts BY: MYRON ROMANIUK, PRESIDENT& CEO, GILLONS INSURANCE B onding is an attractive option for companies who are looking to grow their business and increase their chances of landing construction contracts. Construction bonds are frequently and incorrectly assumed to be a form of construction insurance. They are, in fact, very different. The main differences between construction bonds and a construction insurance policy are: • • • A bond is a three-party agreement between a surety company (party who guarantees the contractor will complete the work to job specifications), a principal (contractor or the bond purchaser) and obligee (the one who the contractor is doing the work for). An insurance policy is a two-party agreement between an insurer and insured. A bond is triggered when a principal defaults on its obligation to the obligee. These could include reasons such as the principal’s insolvency or abandoning the work. In contrast, an insurance policy is triggered only by accidental events. A bond pays for pure economic loss, meaning the cost to complete the principal’s obligation, and has the right to seek recovery from the defaulting principal. On the other hand, an insurance policy excludes coverage for completing construction contract obligations 26 SPRING 2016 and has no right to recovery against the insured. The benefits of bonding are numerous. The most positive benefit to a contractor may be the increased business that it can bring. More and more contracts that are tendered today have specific bonding requirements. If a contractor does not have a bonding facility in place, this typically doesn’t allow them to bid on these types of jobs. Not only does bonding make a construction company more likely to be hired on for large contracts or projects, but it also brings in more work on an invitation basis. Large companies, such as the mining companies that are operating in Northwestern Ontario, are only using companies with bonding facilities in place for their main contracts. They know these companies are financially sound and have a track record that can guarantee the work will be done properly and in a timely manner. Getting bonding isn’t easy. However, at Gillons, we have helped dozens of contractors get their very first bond. We’ve created a step-by-step plan and will work with you, your accountants, and lawyers to put you on the path to obtain your very first bond. We also help experienced contractors with existing bonding facilities increase their capacity so they can bid on larger jobs. Positive income and good margins, low debt, shareholder growth and good operational cash flow are all commonly associated with bonded companies. These all signal financial strength of your business and are very attractive qualities to a company looking to hire a contractor. It is important to note that bonding is not solely for general contractors. Subcontractors are frequently being asked to post bonds for general contractors that they are working for on larger contracts. This tendency is growing and it ultimately increases a sub-contractors potential to secure contracts that they may otherwise be overlooked on. Bonding is a growing trend in Canada. It isn’t mandatory but definitely something that your construction company should consider having in place in order for your company to remain viable into the future. At Gillons, we have a team of experts with decades of experience in both construction bonding and all aspects of commercial insurance. With 11 offices located across much of Northwestern Ontario, we invite you to contact any of our offices to discuss how one of our bonding experts can help you secure a bonding facility and, ultimately, help your construction company be more successful. For contact information for our 11 offices, please visit www.gillons.on.ca Myron Romaniuk, CET, CAIB, is the President and CEO at Gillons Insurance and a Certified Engineering Technologist.