# Surety Bonds: Bid & Performance



## toscottm (Jan 30, 2007)

Hi All,

I'm interested to hear from those who get involved in work that requires a form of 'guarantee'. 

What is the typical form of acceptable guarantee (surety bond, certified cheque held, letter of credit, etc.)?

If the guarantee is self-funded (i.e. certified cheque or letter of credit), what form of assets are used to support this (cash on hand from operating account, line of credit secured by cash in operating account, pledge of personal assets, equity in corporately funded life insurance policy, etc.)?

Any thoughts and input would be greatly appreciated.

Thanks!

Scott


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## lawmart (Feb 11, 2007)

hi scott. 

when i did on contracts for different places they require diffrent things
MTO 2-5 k, in a certified chque with bid
City of Brampton 10% of contract, when awarded.
Windsor 100% of the contract City of Hamilton 5k, each place is different. find I use the certified cheque method they actually take out the amount ouy of your account and hold it in a other account. so it is money right out of your pocket. the letters, if it is a large amount then it is like a lone you borrow the amount say 10-250K loan when you are done the job you get the money back but you had to pay for the interest so put that in your bid. 

The letter of irr. credit is i think is based on yuor past history with the bank
but this is big .....big business.


Lawmart

play safe


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## toscottm (Feb 12, 2007)

*Surety: Various Methods*

Lawmart,

Thank you for your response!

You confirm what was expected. I'm working on a unique new solution that will replace the need for a tree service company (contractor of any type for that matter) to either buy a bond or temporarily use available cash on hand (or credit line) as a bid or performance guarantee.

Recently it was realized that a major tree service company here in southern Ontario is bonding their work at a cost of thousands annually. Of course, paying for a bond is money spent (in addition to the insecurity of having to pledge corporate and personal assets to establish a bond). As you mention, some companies instead use their available cash (operating cash) or their credit line (also secured by corporate and personal assets).

I would be interested in talking to you (and others) in Canada and especially in southern Ontario to find out more about those (MTO, municipalities, Hydro One, etc.) who require surety from tree companies and what they have done to handle these requests. If the methods you point out are usual then this new solution is going to have many significant benefits.

Feel welcome to contact me directly via e-mail ([email protected]). 

Are you going to Ottawa for the ISA conference? If so, look me up. I'm exhibiting in the TREESURE booth and would enjoy sharing this idea with you and getting your feedback.

Best Wishes!

Scott


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## inspro (Apr 3, 2007)

toscottm said:


> Lawmart,
> 
> Thank you for your response!
> 
> ...




Scott,

It sounds like you have been told many of the common misconceptions of suretyship. Let me try to clear a few things up for you  

First, the cost of the bond varies depending on the amount of the contract, the type of work, and the financial strength of the company and it's owners. 

Secondly, bonds typically do not require any type of collateral, or for you to "pledge" assets. The benefit in bonds is that you use the surety bond companies financial strength to guarantee the contract for you in exchange for the premium fee. This free up capital to help you run your business with more liquidity. It also allows you to earn interest on the funds that you might otherwise have tied up in an ILOC or other guarantee. The fact that they had to provide collateral tells me they are not a very strong account and probably do not qualify for a preferred rate.

I suggest applying for a bond if you want to know what it will cost you. Also, be sure to calculate all costs of other forms of guarantees. For instance, the cash freed by the bond can be put into a money market account at 5% interest. In other words, other forms of guarantees will cost you 5%, plus whatever else they charge.


Good luck!


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