Does a construction or general contractor business plan need a surety bonding strategy?

A construction company's business plan has two readers, not one. The first is the lender deciding whether to finance equipment, a yard, or working capital — often a CSBFP-backed term loan on the equipment and leaseholds. The second is the surety deciding whether to stand behind the firm on bid, performance, and payment bonds — the credit that lets it win larger and public work in the first place. The second reader is the one most contractor plans ignore. This guide reframes the plan as a bondability document: how sureties underwrite character, capacity, and capital, the three standard bond types, Ontario's mandatory bonding rule on public contracts, and what a surety needs to see that a lender does not.

Why is a contractor's business plan really a bondability document?

For most businesses, the plan is a financing instrument — the plan a lender asks for behind a business loan. For a contractor, it is also a credit application to the surety industry — because bonding, not cash, is often the binding constraint on growth.

A surety does not lend money. It lends its credit: it guarantees to a project owner that the contractor will perform the contract and pay its trades. If the contractor defaults, the surety steps in, then recovers its loss from the contractor under a general indemnity agreement. Because the surety prices for zero losses and has no interest income to offset risk, it pre-qualifies a contractor more like a credit grantor than an insurer.

That pre-qualification produces a "bondability" assessment. The Surety Association of Canada (SAC) describes a surety pre-qualification letter as a non-binding letter from the surety to an owner confirming the bondability of its contractor client — not a bond, and not a commitment, but a signal that the firm is in good standing. A plan written to support that assessment is doing more work than a plan written for a lender alone.

What are the three core construction surety bonds?

Canadian construction bonding rests on three standard instruments, each guaranteeing a different obligation. The Canadian Construction Documents Committee (CCDC) publishes the standard forms, and released 2024 editions — the first revision of these forms since 2002.

Bond	CCDC form	What it guarantees
Bid bond	CCDC 220	The successful bidder will enter the contract and provide the specified contract security
Performance bond	CCDC 221	The contractor will perform and complete the contract per its terms
Labour & material payment bond	CCDC 222	The contractor will pay its subcontractors and suppliers

The bid bond protects the owner during tender; if a winning bidder walks away, the surety covers the difference to the next-best bid up to the bond amount. The performance bond protects the owner during construction. The labour and material payment bond protects the subcontractors and suppliers down the chain, who otherwise have limited recourse if the prime contractor fails to pay.

The CCDC also publishes CCDC 22 — A Guide to Construction Surety Bonds, an explanatory document (not a contract) that walks through suretyship, how bonds are obtained, and the function of the 220/221/222 forms. It is a useful reference when a plan needs to describe a bonding strategy accurately.

Does Ontario require bonds on public construction contracts?

Yes — and the threshold is specific. Under section 85.1 of Ontario's Construction Act, in force since July 1, 2018, a contractor entering a "public contract" with a contract price of $500,000 or greater must furnish both:

• a performance bond, and
• a labour and material payment bond.

Each bond must cover at least 50% of the contract price, and the surety issuing it must be licensed under Ontario's Insurance Act.

The Act defines a "public contract" as one where the owner is the Crown, a municipality, or a broader public sector organization (school boards, hospitals, colleges, transit authorities, and similar). It excludes contracts where the contractor is an architect or engineer. For very large public-private partnership projects — those with a contract price over $100 million — the minimum coverage is capped at $50 million rather than 50%.

Ontario prescribes its own statutory bond forms for these contracts: Form 31 (labour and material payment) and Form 32 (performance). These were developed with input from the Surety Association of Canada and are more procedurally detailed than the CCDC forms — Form 32, for example, sets out notice steps and surety response timelines that the CCDC performance bond leaves open. A contractor bidding Ontario public work should plan around the statutory forms, not the CCDC equivalents.

Other provinces and many private and institutional owners require bonding through procurement policy or contract terms rather than a single statute, so the specific rule varies. A contractor's plan should state which regime its target work falls under.

How does a surety's decision differ from a bank's?

A lender and a surety look at overlapping evidence but ask different questions.

	Lender	Surety
What it provides	Cash (a loan or line)	Credit (a guarantee of performance/payment)
How it's repaid	Principal + interest from cash flow	Expects no loss; recovers any loss via indemnity
Primary concern	Can the business service the debt?	Can the contractor complete the bonded work and pay its trades?
Core lens	Cash flow, collateral, debt-service coverage	The three Cs — character, capacity, capital
Upside to offset risk	Interest income	None — prices for zero losses
Key documents	Financials, projections, the ask	Financials plus work-in-progress schedule, completed-project history, indemnity

The practical consequence: a firm a bank would readily lend to may still be declined a higher bonding limit if its working capital is thin or its largest completed project is far smaller than the job it wants to bid. The reverse also happens. Because the assessments diverge, a plan that satisfies only the lender — built around what lenders actually read in a business plan — can leave the bonding question unanswered.

What are the three Cs of surety underwriting?

Sureties evaluate a contractor against three criteria. Falling short on any one can reduce a bonding limit or decline the file, regardless of how strong the other two are.

Character. The contractor's reputation, integrity, and the manner in which it runs its business. Underwriters assess it through personal and business credit history, the track record on completed bonded projects, references from owners and suppliers, and the firm's transparency during the application. Character is widely treated as the most important of the three and the hardest to quantify; a contractor with modest financials but strong character may still secure bonding, while a well-capitalized firm with integrity concerns may not. Concealing a past dispute tends to damage credibility more than the dispute itself would have.

Capacity. The organizational and technical ability to complete the work profitably — not merely to finance it. Underwriters look at the type, value, and outcomes of completed projects, the resumes of project managers and superintendents, equipment and subcontractor resources, and the current workload. A work-in-progress (WIP) schedule — every active job's costs, billings, and projected margins — is central. Overextension, taking on too much work relative to capacity, is one of the most common causes of contractor default, which is why backlog is read as a risk signal, not just a revenue signal.

Capital. The financial foundation: working capital, net worth, and balance-sheet strength to absorb the cash-flow swings inherent in construction, where costs run ahead of progress payments. This is where the plan's projections and the firm's financial statements do their heaviest work.

What does a surety need in the plan that a lender does not?

Three sections turn a financing plan into a bondability plan:

• A working-capital and net-worth position, not just a profit projection. Sureties anchor bonding limits to working capital and net worth. A plan that shows revenue growth but a thin current ratio reads as higher risk, because the firm could win work it cannot cash-flow. State the figures and how they are maintained.
• A backlog and work-in-progress narrative. Beyond the income statement, a surety wants to see the shape of the order book: jobs under contract, percent complete, projected margins, and how the proposed new work fits alongside it. A common reference point is that a contractor can qualify for a bonded project up to roughly 1.5 times its largest completed job — so the plan should make the comparable-project history explicit rather than leaving the surety to infer it.
• A continuity and indemnity picture. Who runs the projects, what happens if a key person is unavailable, and who stands behind the general indemnity agreement. Sureties extend credit to people as much as to balance sheets.

None of these guarantee a bonding line — that is the surety's decision, on the surety's evidence. The plan's job is to present the firm's character, capacity, and capital accurately and completely so the assessment can be made on full information.

The bottom line

A construction or general contractor business plan that addresses only the lender answers half the question. The other half is bondability: whether a surety will back the firm on bid, performance, and payment bonds, which is what unlocks public work (mandatory in Ontario at or above $500,000 under section 85.1) and most larger private contracts. Bridge Note, a Canadian business plan service, builds contractor plans to satisfy both readers — modelling working capital and net worth to the figures a surety weighs, framing the backlog and work-in-progress narrative, and aligning the financing ask with the bonding strategy. We build the plan and the projections; the lender underwrites the loan and the surety underwrites the bond. Writing for both from the start avoids a plan that finances the firm but can't bond it.

Frequently asked questions

Does a construction business plan need a bonding strategy, or just a financing plan?

Both. A contractor's plan has two readers: the lender, who underwrites the ask, and the surety, who underwrites the firm's bondability — its ability to be backed on bid, performance, and payment bonds. The two assessments overlap but aren't identical. A plan that only addresses the lender often omits what a surety needs: a working-capital position, a work-in-progress and backlog narrative, and evidence of completed projects of comparable size. If the company bids public or larger private work, the bonding strategy belongs in the plan.

What are the three main types of construction surety bonds in Canada?

The bid bond (CCDC 220) guarantees that a successful bidder will enter the contract and provide the specified contract security. The performance bond (CCDC 221) guarantees the contractor will complete the contract per its terms. The labour and material payment bond (CCDC 222) guarantees the contractor will pay its subcontractors and suppliers. The CCDC published 2024 editions of all three — the first revision of these standard forms since 2002. Ontario also prescribes its own statutory forms (Form 31 and Form 32) for public contracts under section 85.1 of the Construction Act.

Does Ontario require surety bonds on public construction contracts?

Yes. Section 85.1 of Ontario's Construction Act, in force since July 1, 2018, requires a contractor entering a public contract with a contract price of $500,000 or greater to furnish both a performance bond and a labour and material payment bond. Each bond must cover at least 50% of the contract price, and the surety must be licensed under Ontario's Insurance Act. A "public contract" is one where the owner is the Crown, a municipality, or a broader public sector organization. The statutory forms are Form 31 (payment) and Form 32 (performance).

How does surety underwriting differ from a bank loan decision?

A lender lends money and is repaid with interest; it focuses on cash flow and collateral to service debt. A surety lends its credit, not cash — it guarantees the contractor's performance to a project owner and expects zero losses, recovering any loss from the contractor through indemnity. Because the surety has no upside to offset risk, it pre-qualifies more like a credit grantor than an insurer, weighing the "three Cs": character, capacity, and capital. A surety may decline a firm a bank would happily lend to, and vice versa.

What are the three Cs of surety bonding?

Character, capacity, and capital. Character is the contractor's reputation, integrity, credit history, and track record completing bonded work — often the deciding factor in borderline files and the hardest to quantify. Capacity is the organizational and technical ability to complete the work profitably: project experience, key personnel, equipment, and current workload shown on a work-in-progress schedule. Capital is the financial foundation — working capital, net worth, and the balance-sheet strength to absorb project cash-flow swings. Falling short on any one can reduce a bonding limit or decline the file.

What is a bonding capacity and how is it set?

Bonding capacity is the total dollar value of bonded work a surety will back at one time, usually expressed as a single-project limit and an aggregate limit across all active jobs. It is set by the surety based on the three Cs — principally working capital and net worth, supported by the work-in-progress schedule and completed-project history. A common industry reference point is that a contractor can qualify for a bonded project up to roughly 1.5 times the size of its largest completed job, though each surety sets its own thresholds.

Do private construction contracts require bonds too?

Bonds are mandatory on Ontario public contracts at or above $500,000 under section 85.1, but on private work they are contractual, not statutory. Many private owners, developers, and general contractors still require bid, performance, and payment bonds from subcontractors as a condition of award — particularly on larger or institutional projects. Whether or not a bond is mandated, the underlying bondability assessment is the same, which is why a contractor's plan benefits from being written to satisfy a surety even when no bond is currently required.

Sources

1. Construction Act, R.S.O. 1990, c. C.30 — section 85.1 — Government of Ontario (e-Laws)
2. Surety Association of Canada — About Us / Surety Resource Centre — Surety Association of Canada
3. CCDC 220, 221, 222 – 2024 Bond Forms — Canadian Construction Documents Committee, 2024
4. CCDC 22 – A Guide to Construction Surety Bonds — Canadian Construction Documents Committee, 2002
5. Ontario's Construction Act: Mandatory Performance Bonds for Public Contracts > $500,000 — LXM Law, 2020
6. Performance Bonds: The New Form 32 Under Section 85.1 of the Ontario Construction Act — McMillan LLP
7. Construction Bonds — What You Need to Know — Miller Thomson LLP
8. Surety Underwriting in Canada: What Underwriters Look For — Roughley Insurance, 2025
9. The Three Cs of Surety: Character, Capacity and Capital — Construction Executive