The side-by-side, in 60 seconds
| Bid bond | Performance bond | |
|---|---|---|
| When required | At bid submission | At contract award |
| Face value | Typically 10% of bid amount | Typically 50% of contract value |
| CCDC form | CCDC 220 | CCDC 221 |
| What it protects | Owner if winning bidder refuses to enter the contract | Owner if contractor fails to complete the work |
| Duration | Bid validity period (60 to 90 days) | Construction period plus warranty (often 12 months after substantial completion) |
| Typical premium | 1% to 3% of bond face value, often flat $250 to $750 for SMB sizes | 0.5% to 1.5% of contract value, paid once |
| Risk to surety | Low. Contractor must enter the contract or pay the bond | Higher. Surety may have to step in and complete the project |
| Refundable | Premium no; bond yes, when bid validity ends | Premium no; bond yes, at substantial completion or end of warranty |
The two bonds answer different questions. The bid bond answers "are you serious about this bid?" The performance bond answers "can you actually finish what you're starting?"
Both are usually required for any Canadian public-sector construction tender above $100,000 in contract value. We've covered the full list of bidding requirements in How to bid on government construction contracts in Canada. Bonding is Step 7 there.
What a bid bond is and how it works
Here's how the mechanics work.
You ask your surety to issue a bid bond for a specific tender. The bond has three parties: you (the principal), the surety company (the obligor), and the owner who issued the tender (the obligee). The face value is typically 10 percent of your bid amount, so a $1.2 million bid carries a $120,000 bid bond. The bond is delivered with your bid submission.
If you win the tender and enter into the contract, the bid bond is replaced by a performance bond and the bid bond is released. The owner returns the original document to the surety. Nothing changes hands financially.
If you win and refuse to enter the contract, the owner can call on the bid bond. The surety pays the owner the difference between your refused bid and the next-lowest compliant bid, up to the bond face value. The surety then collects that amount from you under your General Indemnity Agreement. Bid bonds are not a "walk away" cushion. They are designed to make walking away painful.
If you don't win the tender, the bid bond is returned (or its release is confirmed in writing) within the bid validity period. That's typically 60 to 90 days from tender close. The premium you paid is not refunded. It's the cost of being in the auction.
When a bid bond is required
The tender notice and the bid solicitation document specify the bonding requirement. Read both sections carefully. There are three common variations:
- Bid bond at 10 percent on CCDC 220. The standard for federal and most provincial construction tenders above $100,000.
- Bid security deposit: certified cheque or bank draft equal to a stated dollar amount. More common on smaller municipal tenders. Ties up cash but is faster than arranging a bond.
- Either bond or letter of credit: the contracting authority accepts an irrevocable letter of credit from a Canadian chartered bank in place of a surety bond. See letter of credit vs surety bond below.
A handful of smaller-value tenders waive bonding entirely. For those, the contractor's financial standing and references are the only assurance the owner has, which is why those tenders often go to known suppliers.
What a performance bond is and how it works
The bond is issued after you win and at the moment the contract is executed. Like the bid bond, it has three parties: you (principal), surety (obligor), and owner (obligee).
If you fail to complete the work, the owner has options. The owner can declare default and call on the surety. The surety then chooses one of three remedies under the CCDC 221 form:
- Complete the contract by taking it over directly and hiring substitute contractors.
- Arrange for a substitute contractor to complete the work, with the surety paying any excess cost up to the bond limit.
- Pay the owner the amount required to complete the work (up to the bond face value), and the owner finds the substitute.
The surety's payout limit is the bond face value, typically 50 percent of contract value. That's the maximum the surety is exposed to. Anything beyond that is the owner's loss to absorb, although in practice most surety payouts settle below the cap.
After the surety pays, it pursues the contractor under the General Indemnity Agreement. The personal indemnity from the company's owners is what makes the surety willing to take the underwriting risk in the first place. Contractors who default on bonded contracts do not get to walk away clean.
What the performance bond covers (and doesn't)
It covers the contractor's failure to perform the contract. It does not cover defective work that is discovered after substantial completion. That's the warranty obligation, separate from the bond. It does not cover the contractor's payment obligations to subs and suppliers. That's the labour and material payment bond. And it does not cover late completion as a standalone event unless the late completion is so severe that the owner has terminated the contract.
The third bond contractors forget: labour and material payment
Most Canadian government construction tenders require three bonds, not two: a bid bond, a performance bond, and a labour and material payment bond.
This bond exists because a contractor who runs out of cash mid-project can leave a trail of unpaid subs and suppliers, who then file liens against the project property or sue the owner. The labour and material payment bond gives those subs a direct claim against the surety, which keeps the project clean.
From the contractor's perspective, the labour and material payment bond is rarely a separate decision. Most Canadian sureties quote performance and payment bonds together as a combined premium, and both are issued at the same time on the same underwriting. The contractor doesn't get to choose one without the other.
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CCDC 220, 221, 222: the standard Canadian forms
The Canadian Construction Documents Committee publishes the standard forms used across Canadian public-sector construction. For bonding, the three relevant forms:
- CCDC 220. Bid Bond. Two pages. Specifies the principal, surety, obligee, the bid amount, the percentage of the bid covered, the conditions under which the bond can be called, and the bid validity period.
- CCDC 221. Performance Bond. Specifies the contract value, the bond face amount (typically 50 percent), the surety's remedies on default, and the procedure for the owner to declare default and notify the surety.
- CCDC 222. Labour and Material Payment Bond. Specifies the contractor's obligation to pay claimants for labour and material supplied to the project, the procedure for claimants to file claims against the bond, and the surety's payment obligations.
Tenders typically require the specific CCDC form. Substitute forms, even ones with substantially identical language, are sometimes rejected as non-compliant. When in doubt, use the CCDC form your surety issues. Don't try to draft your own bond.
The CCDC forms are reviewed periodically. CCDC 220 (bid bond) and CCDC 221 (performance bond) currently in widespread use were last revised in 2002 and remain the standard. Some federal departments and provincial agencies have published their own variants on the CCDC base, so read the tender carefully to confirm which form is required.
The bond forms are part of a larger CCDC family that also includes the base construction contracts (CCDC 2 Stipulated Price, CCDC 3 Cost Plus, CCDC 5A and 5B Construction Management, CCDC 14 Design-Build, and others). For the full directory and when each one applies, see CCDC documents explained.
Letter of credit vs surety bond
Most Canadian federal and provincial construction tenders accept an irrevocable letter of credit from a Canadian chartered bank in place of a bid bond, and on some smaller tenders, in place of a performance bond as well. The letter of credit must be unconditional and payable on the owner's demand without proof of the underlying claim.
Letters of credit and surety bonds look similar to the owner but they're structurally different for the contractor:
| Surety bond | Letter of credit | |
|---|---|---|
| Issuer | Canadian surety company | Canadian chartered bank |
| Underwriting | Reviews financials, references, past projects, equity, working capital | Reviews credit standing and reserves face value against operating line |
| Cost to contractor | Premium (typically 1% to 3% face value) | Fee (typically 1% to 2% per year of face value) |
| Working capital impact | Minimal. Bond is contingent | Significant. Bank reserves face value against operating line |
| When to use | Contractors who bid frequently | One-off bids or contractors without a surety facility |
The hidden cost of a letter of credit is the working capital tie-up. A bank issues a $120,000 letter of credit by reserving $120,000 against your operating line. That's $120,000 you can't use for payroll, equipment, or other project bonds while the letter of credit is outstanding. For a contractor with a $500,000 operating line, a few large letters of credit can quickly exhaust available credit.
Surety bonds are off-balance-sheet for the contractor. The surety underwrites the obligation but doesn't tie up your working capital. That's why contractors who bid regularly almost always establish a surety facility, even though letters of credit can work in a pinch.
How to get bonded as a Canadian SMB
Establishing a surety facility for the first time is the slowest step in the entire government-bidding process. Most SMB contractors discover this when they read a tender's bonding section three weeks before close and realize they can't get a bond in time.
The process, with realistic timelines:
Step 1: Choose a licensed surety broker (1 week). Most Canadian SMB contractors access surety markets through independent brokers. Common options include Trinity Risk, BFL Canada, HUB International, AON, Marsh, Frank Cowan, and Westland Insurance, plus regional alternatives. The broker represents multiple surety markets and negotiates facility terms on your behalf. A surety broker is not the same as a regular insurance broker, so confirm the firm has a dedicated surety practice.
Step 2: Assemble the underwriting package (1 to 4 weeks, depending on your accounting status). Sureties want:
- Two to three years of audited or review-engagement financial statements
- Current internal year-to-date statements
- Work-in-progress schedule showing all uncompleted contracts, contract values, billings to date, and estimated cost to complete
- Personal net worth statements from each owner with 10 percent or greater ownership
- Banking references including operating line size, current utilization, and historical relationship length
- Project portfolio showing completed work, completion certificates, and contract values
- Resumes for owners and key project management staff
If your firm has never produced review-engagement financial statements before, that step alone takes an extra 4 to 8 weeks. Plan accordingly.
Step 3: Submit to surety underwriting (2 to 6 weeks). Your broker submits the package to one or more Canadian surety markets. The major Canadian sureties include Aviva Insurance Canada, Trisura Guarantee Insurance, Travelers Canada (The Guarantee Company of North America), Intact Insurance, Sovereign Insurance, Berkley Canada, and Liberty Mutual Canada. The surety underwriter reviews your financials, calls your bank, checks your references, and may request additional documentation.
Step 4: Receive the capacity offer. The surety offers a single-project limit (the largest contract they will bond) and an aggregate limit (the total uncompleted bonded work they will support at any one time). Typical first-time SMB facilities:
- Single-project limit: $1 million to $5 million
- Aggregate limit: $3 million to $15 million
The limits are roughly correlated with working capital and retained earnings. Most Canadian sureties want to see roughly 10 percent of aggregate capacity in working capital. A contractor seeking $10 million aggregate typically needs to demonstrate $1 million in working capital.
Step 5: Sign the General Indemnity Agreement (GIA). The owners personally indemnify the surety against losses. This is the most important document in the entire surety relationship. The personal indemnity does not extinguish when the corporation winds down, changes hands, or files for protection. If you and your spouse both sign as personal indemnitors, both of you are personally liable. Read it twice before signing, and have a corporate lawyer review it once.
Step 6: Request bonds per tender (1 to 3 business days each). Once the facility is in place, individual bid bonds and performance bonds are routine. Your broker submits the tender details (contract value, project description, completion timeline), and the surety issues the bond on the appropriate CCDC form. For straightforward jobs within your capacity, turnaround is 1 to 3 business days.
Total elapsed time for a first-time facility: 6 to 12 weeks, possibly longer if your financial statements need work. There is no shortcut. Sureties don't underwrite quickly because the relationship is long-term and the documentation requirements are non-negotiable.
What bonds actually cost
Surety companies don't publish their rates publicly, which makes it hard for first-time contractors to know what's normal. Approximate ranges based on Canadian market conditions in 2026:
| Bond type | Premium range | How charged |
|---|---|---|
| Bid bond (SMB sizes) | $250 to $750 flat per bond, or 1% to 3% of bond face value | Per request |
| Performance bond | 0.5% to 1.5% of contract value | Once at contract execution |
| Payment bond | Usually combined with performance bond premium | Once at contract execution |
| Renewal premium (long projects) | 0.25% to 0.5% of contract value annually beyond the original term | Annually if project extends |
A worked example. A $2 million construction contract, 18-month duration:
- Bid bond at submission: about $500 flat fee
- Performance and payment bonds combined at award: about 1% of contract value, so $20,000
- Total cost of bonding for this project: roughly $20,500
That bonding cost is small relative to the contract value, but it does come out of your bid margin. Many SMB contractors miss this and price the bid as though bonding were free.
Premiums vary based on:
- Contractor financial strength. Stronger working capital and retained earnings produce lower premiums.
- Project type and risk. Tunnel work, environmental remediation, and heavy industrial projects carry higher premiums than school renovations or office fit-ups.
- Project size relative to your single-project limit. A project at 80 percent of your limit costs more to bond than one at 30 percent.
- Loss history. Any prior surety claim against your firm produces meaningful rate increases on subsequent facilities.
- Market conditions. Hard surety markets (after major industry losses) raise rates across the board; soft markets reduce them. The Canadian surety market has been moderately hard in 2025 and 2026 following construction sector consolidations.
Capacity, single-project limit, and aggregate
Two numbers from your surety determine which tenders you can chase.
Single-project limit. The largest contract value the surety will bond on any one job. If your single-project limit is $3 million and you find a $4 million tender, you cannot bid it under your current facility. You can ask the surety to increase the limit for that specific project (a "special bond"), but that requires its own underwriting cycle.
Aggregate limit. The total uncompleted bonded work the surety will support across all your active projects at one time. A contractor with $10 million aggregate and three active bonded projects totalling $7 million has $3 million of remaining aggregate capacity. The aggregate available decreases as you take on new bonded work and increases as projects complete.
Both limits are reviewed annually as part of your surety facility renewal. Successful bonded project completion expands your capacity. Financial deterioration or loss history shrinks it.
Most contractors significantly underestimate how quickly aggregate fills up. A small contractor with three concurrent $1.5 million projects has $4.5 million of aggregate exposure even if no single project is large. Bid pipelines need to be planned around remaining aggregate, not single-project capacity.
Five things that surprise first-time bonded contractors
The first surety facility comes with predictable surprises. None of them are deal-breakers, but the contractors who know about them in advance get through the process faster.
Working capital is the binding constraint. First-time applicants often assume their equity and revenue will dictate capacity. Most Canadian sureties anchor on working capital (current assets minus current liabilities) at roughly 10 percent of aggregate. A shop with $200,000 working capital typically gets approximately $2 million of aggregate capacity, regardless of how much equity sits on the balance sheet.
Personal indemnity is permanent. The General Indemnity Agreement extends personal liability to each owner who signs. If you sell the company, the indemnity survives unless the surety formally releases you in writing. If a default occurs years after you've sold, the surety still has recourse against your personal assets.
Banking relationships matter. Sureties call your bank as part of underwriting. A long-standing operating relationship with a Canadian chartered bank meaningfully helps your file. Switching banks immediately before applying for surety is a common unforced error.
Review-engagement statements are usually enough. Many first-time applicants assume sureties require audited financial statements. For SMB-size facilities (under $10 million aggregate), most Canadian sureties accept review-engagement statements from a CPA firm. Audits are typically only required for larger facilities.
Your broker's surety expertise matters more than the firm's size. Most Canadian surety business runs through brokers, and the broker handles the relationship with the underwriter. A broker who specializes in construction surety will know which markets favour your project profile and how to present your file. A general insurance broker may submit to the wrong market and get a worse offer.
Bonding done well becomes background infrastructure. Bonding done poorly becomes the reason an otherwise winnable bid never gets submitted. The contractors who consistently win government work establish their surety facility before the right tender appears.