Surety bond

A buyer of a contracting or trade business may find that its contracts depend on bonds. EDC’s surety bond insurance page speaks of the bonding capacity a business needs to sell internationally and of using surety bonds to bid on more projects, and says “Don’t let a lack of capacity from your surety provider hold you back.” After an acquisition, ask whether the existing bonds and the surety’s willingness to keep supporting the business carry over to the new owner.

How federal buyers use bonds

CanadaBuys says a federal procurement can require offer financial security, to protect Canada against loss if an offeror fails to enter into a contract; contract financial security, to ensure a contractor fulfills its obligations; and a payment bond, to protect subcontractors and material suppliers. Offerors have the right to choose the form of financial security they will provide, and surety bonds are among the acceptable forms. The federal buyer must verify that any entity chosen to provide financial security is licensed to do so in the jurisdiction of the contract.

What to ask

• Which bonds are outstanding and which contracts each one secures.
• Whether the surety must be told of, or consent to, a change of owner or management, and what it will ask the buyer to provide.
• How a change of ownership affects the business’s managerial, technical and financial capabilities. EDC says eligibility for its surety bond insurance is determined by EDC based on factors that include those capabilities of the company.

For what shapes a construction business’s price, see what decides what a construction company sells for. This entry draws on federal sources only; check the bonding terms in the contracts you are taking on.