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Subdivision Bonds for Construction

The Subdivision Bond – Understanding This Type Of Surety Bond


Construction businesses throughout Canada need to put in a substantial amount of effort better familiarizing themselves with the various types of surety bonds that they’ll encounter. They’re plentiful and they’ll vary depending on the specific type of project that will be carried out. One of the most complex is the subdivision bond. This unique type of bond can be referred to as an array of different names, including a site improvement bond, completion bond or even a performance bond. What sets it apart from the rest and why is it required? You’ll find out below.



The Basics


Generally, subdivision bonds are necessities, when attempting to bid on a subdivision development project. The bond may be required by the province in your area and could help to guarantee that your company will complete the project within a reasonable period of time. The bond may also involve mandatory public improvements, which could include enhancing sewer systems, streets, sidewalks and even drainage systems, within the subdivision.


It is also possible that the project owner will request the bond. These entities will usually make the bond a requirement, in order to assure themselves and all local authorities that all guidelines will be followed strictly and all requirements will be fulfilled. Once the construction company has acquiring the subdivision bond and it has been made official, they’ll be able to post it and acquire the legal building permit. From there, it is up to the construction company to carry out the project to completion, in order to avoid claims against their bond.



Mandated Improvements


Subdivisions must follow the legal standards set aside by the appropriate governing body. If at any time, the subdivision fails to comply with these laws, penalties for violations will be required. Subdivisions are responsible for maintaining a long list of projects including:



  • Sidewalks and curbs

  • Street lighting

  • Water mains

  • Sewer systems

  • Landscaping

  • Pavement

  • Gutters and drainage structures



In order to keep these projects up to par, the subdivision will bid out these jobs to one or more contractors. The contractor or principal may be required to post security, which is where the subdivision bond comes into play. During the application process, the surety bond company will need to prequalify the contractor, before the bond is issued. Once the bond is issued, the contractor will utilize it as a security guarantee. This document alone can potentially improve the working relationship between the principal (contractor) and obligee (project owner, but in this case, the subdivision).



Letter Of Credit


When attempting to acquire the rights to larger residential developments, developers may be required to abide by stricter laws set forth by the local municipality. One of these requirements is that you may need to acquire a letter of credit. This is a type of security, which helps to provide the municipality with the reassurance that you’ll follow through with your end of the bargain and complete the project as set forth by the contact.


Some Canadian municipalities will actually overlook this requirement, if you provide a subdivision bond in its place. Acquiring the subdivision bond can be easier, so taking this route is generally advantageous to the development. Just make sure you consult with the laws and regulations of your specific municipality, in order to see whether or not you will be able to make do with the subdivision bond.



Differences Between Subdivision And Site Improvement Bonds


Many individuals mistake site improvement bonds for subdivision bonds. Although the two are somewhat similar, they’re also very unique. Take note that a subdivision bond is typically only associated with new residential structures. On the flip side, the site improvement bond is usually required, when the construction company is set to improve an existing structure.



Eligibility Factors


If you’re intent on acquiring a subdivision bond, you’ll first need to apply with a surety company. The eligibility requirements tend to vary from one surety to the next, but there are a few similarities, which are worth nothing. First and foremost, your company’s tenure and experience within the industry will play a major role in your eligibility. Companies with lengthier tenures and additional experience will have a much easier time obtaining this type of bond. Those new to the industry may need to jump through additional hoops, but they will not be ruled out immediately.


Of course, if you fall into the latter category, you may be hit with less generous charges. With this in mind, newer businesses, which 

Surety Bond Quote

remain unproven, will want to put in a little additional effort comparison-shopping, in order to acquire more reasonable rates.



Tips For Getting Bonded

Acquiring a subdivision bond can be a little more complex than acquiring other types of bonds. A handful of variables can play a vital role in your overall cost, so it is truly pertinent to shop around extensively. At the same time, you should make sure that you maintain a good reputation and always do your best to avoid claims. Claims are not only harmful in the short-term, but also they could come back to haunt you and your company in the future.