Performance Bonds in Ontario: What Owners Expect and How Claims Really Happen
Performance bonds are often misunderstood. Many contractors think of them as a formality. Many owners see them as a core risk control tool.
In Ontario and across Canada, performance bonds are common on public work, large private developments, and contracts where schedule and quality are critical. If you take on larger projects, a performance bond request is usually a sign you are moving into a higher tier of work.
This guide explains what performance bonds cover, why they matter, and what you can do to reduce the chance of a bond claim.
What a performance bond guarantees
A performance bond guarantees that the contractor will perform the contract in accordance with the contract terms. If the contractor defaults, the surety may respond by:
• Supporting the contractor to complete the work • Arranging completion through another contractor • Paying the owner up to the bond limit subject to bond terms
A performance bond is not a blank cheque. It is a structured response tied to the contract and the bond form.
Common reasons performance bond claims arise
Most bond claims start with project stress and poor communication.
Common triggers include:
• Schedule slippage and missed milestones • Cash flow strain due to underpricing or slow payment • Labour shortages and subcontractor failures • Quality defects and rework • Scope disputes that become unmanageable • Weak project documentation and change order controls
How sureties evaluate performance bond risk
Sureties ask a simple question. Can this contractor finish this project even if things go wrong.
They look at:
• Project size compared to your prior work • Your project management team and systems • Backlog and workload concentration • Financial strength and liquidity • Change order discipline and documentation
How to reduce the likelihood of a bond claim
1. Price risk honestly Underpricing is one of the most common root causes of default stress.
2. Control cash flow Bonded work can be cash intensive. A clear billing and collections process matters.
3. Strengthen subcontractor qualification Many defaults originate from trade failures.
4. Document everything Daily reports, meeting minutes, RFIs, and change orders protect you and reduce disputes.
5. Escalate early Sureties often prefer early visibility rather than last minute surprises.
FAQ
Is a performance bond required on every Ontario project No. It depends on owner policy and project risk profile. Public and institutional owners use them more frequently.
Does a performance bond replace insurance No. Bonds and insurance address different risks. Owners often require both.
Can a performance bond limit increase as I grow Yes, but it usually requires updated financials and evidence of successful project delivery at the next size tier.
Performance Bond Program Review
If owners in Ontario are starting to ask you for performance bonds, it is time to formalize your surety program. Send us your last year end financials and a list of completed projects. We will map a path to higher bond limits and smoother approvals.