uw logo

Select your language


What is a Surety Bond?

It is an agreement that involves three parties. It ensures that one party, the client, will receive payment in cases where another party, the contractor, cannot fulfill its' duties. For example, imagine the scenario of a complex commercial construction accepted by a contractor, and the client requires a safety net.

 If the contractor cannot fulfill the contract obligation, the client will suffer financially. Having this will ensure that the client receives the compensation they deserve to mitigate this situation.

What is involved in a Surety Bond?

It always involves three parties: the obligee, the principal, and the surety.

It ensures that the obligee (the client that receives an obligation) gets reimbursed if the principal (the party that will perform the obligation) fails to meet that obligation.

The surety (an insurance company) assumes the obligation if the principal cannot.

The amount protected is limited up to the bond's limit.

It protects the obligee against losses up to the bond's limit resulting from the principal's failure to perform its obligation or undertaking. Unlike insurance, a loss paid under the surety is fully recoverable from the principal.

Whom does a surety involve?

It always involves three parties:

Obligee: the party (usually an individual/owner) to whom the bond is paid towards in the event of a default;

Principal: the party (usually a contractor/business) on whose obligation is guaranteed; and

Surety: the party (usually an insurance company) that assumes the obligation if the principal cannot.

How do surety bonds work?

Principals act accordingly by specific laws with backing by this facility. It will provide obligees with financial guarantees that contracts and other business deals will complete according to mutual terms. Should the principal not fulfill them, the obligee can claim to recover losses. The surety company then has the right to reimbursement from the principal in the case of a paid loss or claim.

What is the technology currently used in the surety space?

Modern surety transactions are submitted electronically. As a result, we have seen contractors who've been required to provide electronic documents to procure work. In addition, the digital version of the bond is the only acceptable bidding method in some jurisdictions worldwide. However, few companies in Canada offer and deliver an e-bonding platform to facilitate electronic delivery.

What are the benefits of a surety bond?

It can be considered a "cost-effective" way to finance contract security obligations. Unlike banks, a surety provider does not require security like a bank's Letter of Credit (LOC) and does not need cash or other collateral support. This means more cash flow for a company, reducing debt, and leaving more room for additional contracts that requires security. Furthermore, they represent an alternative with a lower interest rate to bank guarantees and no utilization or line fees.


In short, it becomes a good alternative when there are different obligations and parties while managing risk using LOC. In addition, it comes at a cost advantage, leaving borrowing space available for other financial necessities.

How long does a utilization remain valid?

A surety bond will stay valid for the contract duration, usually lasting for a year. It is often extended for a maintenance period for another year after contractual obligations. The maintenance period is extended to protect obligees if any problem arises or something needs to be changed or re-done. It also gives principals time to object to claims over concerns or complaints filed by obligees.

Insurance brokerages like UW Insure Brokers offer the service to provide the application to bonding facilities, advice on wordings, and indemnity negotiation, ensuring adequate capacity required.

What are the Common types of surety bonds?

Two of the most common forms of surety are a contract surety and a commercial surety. The Surety Association of Canada explains the two as the following:

Contract surety -Contract bonds are used primarily in the construction industry. These bonds protect the owner (Obligee) from financial loss if the contractor (Principal) fails to fulfill their contract's terms and conditions.

Commercial surety - Is used to satisfy public bodies, private corporations, and government entities' security requirements and protect against financial risk. In addition, these bonds guarantee that the business or individual will comply with all required legal obligations.

How are commercial surety bonds generally used?

Most of them are used to satisfy federal and provincial courts' security requirements, government bodies, financial institutions, and private corporations. They guarantee that the business or individual will comply with all required legal obligations.

They are protected against monetary loss, fraud, and misrepresentation compensation.

They can be used to assure the performance of non-construction-related contractual obligations, These guarantee is often known as performance bond. For example, companies that supply and install equipment. An organization may require a bond, so the supplier will install the equipment properly and service it.

What are the Industry Licensing Requirements?

It is regulated and issued only by companies, licensed federally or provincially, approved by insurance regulatory bodies. Applicants must demonstrate financial solvency and sufficient strength to meet potential claims obligations. Only firms licensed to sell surety in Canada may become members of the Surety Association of Canada (SAC). UW Insure Brokers has been a member of SAC for years.

Various Types of Commercial Surety Bonds

There are various types of bonds; some of the most commonly used in commercial include:

1 - Court Bonds, in the form of:

  • Judicial Bonds
  • Fiduciary Bonds

2 - Customs & Excise

3- License & Permit

4- Missing Documents (commonly known as a "Loss Document")

5- Construction bonds, which may be in the following form:

  • Bid bonds
  • Performance bonds
  • Payment bonds
  • Final bonds

A bond's purpose is to satisfy the security requirements of public, legal, government, or private entities to protect against financial risk. In addition, these bonds guarantee that the business or individual will comply with all required legal obligations.

How will the principal be granted the surety?

Principals have to show they have good credit and reputation before a surety company will grant them a "guarantee". In addition, surety companies often require principals to show they have the equipment, experience and financial resources to carry out the contractual obligations.

What is a contract bond?

To understand a contract bond, commonly referred to as a construction bond, we need to know the nature of a surety. It is an agreement involving three parties and usually serves as protection for the client. For example, a complex commercial project could see significant financial losses if contractors hired to do tasks cannot fulfill their obligation. Therefore, having a safety net (through utilizing a surety bond) will reduce the risk for the owner.

Construction bonds

Surety bonds are essential in the construction industry. They typically come in four types:

  • Governments sometimes require tender or Bid bonds to guarantee that contract bids are made right.
  • Performance bonds ensure the construction work will be completed on time and to the required standard.
  • Payment bonds give financial protection to subcontractors and others who provide services and materials to the construction company.
  • Final bonds - A maintenance supply lien bond is also required from time to time when the project is complete.


Getting a contract surety bond

You can start by clicking the request for quote button below for a quote. Then, based on the type or nature, we may reach out to you requesting more information such as:

  • your company's financial results previous 5 years;
  • audit statements if over a certain amount; and
  • the contract if it is a construction surety.

Why UW Insure Brokers? Our shared goal is your business's strength and success. Our surety partners have experienced risk management and skilled underwriting professionals specialized in surety facilities for the industry in need.


Our expertise

We can provide construction or contract surety accounts for the following types of businesses:

General contractors.

Responsible for overseeing any industry, commercial, institutional project construction.

Specialty needs Contract involving:

  • Demolition Work
  • Insulation
  • Steel
  • Formwork
  • Environmental Contractors
  • Janitorial
  • Landscaping
  • Shoring
  • Caisson Work


Civil jobs, roadbuilders, and excavation activities

Usually involved with:

  • Heavy Equipment
  • Concrete work
  • Bridges
  • Roadwork
  • Tunnelling
  • Sewer
  • Water main
  • Infrastructure's Development
  • maintenance
  • projects involving pipelines or
  • drainage. 

Construction suppliers

Those engaged in:

  • pre-cast concrete,
  • steel,
  • stone, or
  • plastics.


Sub-trades such as

  • drywall,
  • electrical,
  • masonry,
  • mechanical,
  • tile,
  • terrazzo contractors, and
  • all other sub-trades.

Manufacturers Providing:

  • doors,
  • windows,
  • cabinetmakers, or
  • other finishing products.

We pride ourselves on building reliable, mutually beneficial partnerships.


How Construction Bonds Work

Contract surety is used primarily in the construction industry. These bonds protect the owner (Obligee) from financial loss if the contractor (Principal) fails to fulfill their terms and conditions. The obligee is safeguarded against a contractor's inability to complete a job.

We work with general contracting, civil road building and projects, sewer and central water systems, any sub-trade, and any construction supplier and/or manufacturer.

Types of Public Sector Contracts Secured by Surety

The most common projects that require a surety or construction bond in the public sectors include:

  • Construction contract security;
  • Security for any service contract requiring a performance guarantee (such as waste collection, recycling center, snow removal)
  • The Public-Private Partnership Contracts. (commonly known as "P3") that covers construction such as transit, bridges, hospitals.

Commonly Used Surety Products

There are five widely used construction bonds or contract surety products. The first three are used at the pre-tendering or tendering stage, and the last two are used for contract performance.


Upon an initial assessment, UW Insure Brokers will proceed with your application. If everything is in place, a surety facility will be created to guarantee a contract's commitments. These documents offer protection from start to finish for businesses focusing on:

  • Agreement to Bond
  • Bid Bonds
  • Performance Bonds
  • Labour and Material Bonds
  • Maintenance, Supply, and Lien Bonds

There will be customized solutions for a project manager, general contractor, subcontractor, supplier, or manufacturer to provide a surety facility that meets any business's evolving needs. Therefore, it is necessary to understand the business goals and focus on running them.


It is essential to study how resources, skills, and experience are allocated: to help understand your business and build a surety solution with proper risk management analysis. The objective is to free the principal to focus on what they are good at, running their company.

Unique Construction Surety Bonds

We have experience in the following areas:

  • public-private partnerships (3P's),
  • cross border US bonds,
  • design-build projects,
  • customizing bonds for unique projects.


Our experienced surety specialists will

  • communicate,
  • provide extensive knowledge and advice,
  • provide customized solutions,
  • maintain superior customer service, and
  • deliver value beyond the surety we provide.

Get quote now. 

Please note: This message is not intended to create any legally binding agreement. The insurer reserves all rights to request additional information or ask further questions as it deems necessary to conduct a full review.