Got performance bond insurance questions?
We’ve got answers. It can be a little confusing to understand what a performance bond is and how it can help you, especially when there are so many types of bonds. Certainly, we often see performance bond insurance issued for businesses in industries such as construction and real estate development.
DYK? A performance bond can be used as a commodity contract. If a sold commodity fails to deliver, a performance bond can protect the buyer.
So, what can a performance bond insurance do for you? How can we find the right one for your needs? Are they worth getting at all?
What is performance bond insurance?
First things first. A performance bond is a financial instrument that helps ensure that companies can complete large projects. It is effectively a promise that the contractor will undertake its responsibilities and obligations as agreed upon in the signed contracts.
The bonds act as a guarantee against the issuing party’s failure to meet their obligations under the contract or deliver on the level of performance specific in their agreement. Banks and/or insurance companies typically create performance bond insurance.
At ALIGNED Insurance, we work with many clients to find the most suitable performance bond insurance that fits their needs and protects their business.
For instance, both private sector construction and government-related projects often require performance bonds. In the event a contractor fails to deliver the work specified in the contract, the customer can always be protected that the work is finished to the specifications outlined on paper.
There are three parts to a performance bond:
- The principal: the person or entity that will be doing the work, such as a contractor or firm
- The obligee: the customer who will be the recipient of the work and is typically the person or entity that purchases the bond
- The surety: the financial institution providing the bond
When an obligee makes a claim against the bond, the surety will pay the amount on the bond, and look to the principal to collect the amount paid out. So performance bond sureties (i.e. financial institution) work hard to make certain that bonds are issued to financially stable and generally successful companies (i.e. principals).
How to find the right performance bond provider
Value matters. There are many financial institutions with services to provide the performance bond that you need. How can you pick the best one that will take care of you at an affordable rate?
You need a performance bond insurance company. Across Canada, ALIGNED Insurance brokers will work with you to:
- Determine your bonding requirements
- Help you meet your needs without impacting your operating and bottom line
- Offer coverage that meets different types of financial and non-financial obligations
- Work with you in negotiating terms with all parties involved
- Walk you through the process, step by step
- Answer any questions you may have regarding performance bonds
- Collect the necessary paperwork needed to create the bond
At ALIGNED Insurance, we can help you secure a performance bond that suits your operating requirements. ALIGNED specializes in delivering insurance and risk management solutions exclusively to Canadian businesses.
Backed by our 18 unique points of differentiation and expertise, we deliver unmatched value to more than 1,600 Canadian clients. We support small business to large corporations across all industries.
Are performance bonds worth getting?
Security matters. The reason most Canadian companies choose a performance bond is to protect all parties involved in the project. A performance bond essentially ensures that there is financial stability across all involved parties to handle the project at hand and that the project can be completed regardless.
For the customer of the project (obligee), they benefit by:
- Assuring project completion
- Knowing that no additional costs need to be incurred
- Receiving compensation in the event of losses, damages, and other unfortunate events such as bankruptcy or insolvency of the principal
For the contractors or firm of the project (principal), they benefit by:
- Reduced risks to potential customers
- A show of proof that they are financially stable
- Making themselves significantly more attractive for winning projects
Meanwhile, more often than not, a performance bond is required in order to guarantee the completion of a government-related project.
Cost of performance bonds
Performance bonds typically cost approximately 1% of the project value.
However, cost is highly dependent on numerous factors.
For projects valued at more than $1 million, a performance bond can cost more. Of course, most firms will include the cost of the bond into their total bid. That way, it is not an additional expense to the project.
How ALIGNED Insurance can help you
Our industry peers consistently recognize ALIGNED Insurance as one of the best insurance teams in the country. Canadian businesses choose us for their unique insurance needs because we deliver insurance that is always aligned with their bottom line.
Here are a few benefits for choosing us for your performance bond needs:
- Our fee for service model. This means no commission models that our competitors use that incentivize increasing insurance costs
- Our service guarantee. If we don’t achieve the agreed upon goal, a portion of your fee is returned to you.
- We specialize exclusively in business insurance. You get nothing but the absolute best expertise, products, service, and insights for your business
- You receive priority claims response over non-ALIGNED clients. This ensures that claim costs are kept at a minimal and your organization can get back up and running as soon as humanly possible
- No sales people. Unlike our competitors, the person you deal with is with you from start to finish. Through capped workloads, we ensure you and your organization always receive the highest quality service that you deserve.
We at ALIGNED Insurance offer tailor-made insurance for each of our customers. We aim for peace of mind and deliver on the assurance of protection from a variety of risks. Our team will work with you on the specific details and unique circumstances of your need and deliver quality work in a timely manner.
Performance bonds provide a guarantee to those in need of projects to be delivered. Whether it be for real estate development, construction of a building, or the trading of commodities, performance bond insurance reduces the risks to potential clients and contributes to the value of your pitch and bid for winning new projects.