Commercialen Financing Guarantees | Tag Bid Bond
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4.50. Financial Security

  1. Financial security can be required from a supplier to:
    1. protect Canada against loss should a supplier fail to enter into a contract (bid financial security);
    2. ensure that a contractor's obligations under a contract are carried out (contract financial security); or
    3. protect subcontractors and material suppliers (payment bond).
  2. The financial security may be a security deposit (government guaranteed bonds, bills of exchange, irrevocable standby letters of credit or a surety bond).
  3. The decision to obtain financial security for competitive solicitations must be taken before issuing the solicitation and the solicitation must state clearly what is mandatory.
  4. Suppliers have the right to determine which form of financial security they will provide. See SACC Manual clauses E0004T and E0007C.
  5. Government guaranteed bonds will be valued at current value;
  6. Treasury Board has an updated list of Appendix L - Acceptable Bonding Companies whose bonds may be accepted as security by the government.
  7. For more information on risk management, consult Chapter 3 - Procurement Strategy; for information on the handling of bid and contract security, consult Chapter 7 Award of Contracts and Issuance of Standing Offers and Supply Arrangements.

4.50.1 Surety Bond Forms

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The surety bond forms are:

  1. PWGSC- TPSGC 504, Bid Bond;
  2. PWGSC- TPSGC 505, Performance Bond; and
  3. PWGSC- TPSGC 506, Labour and Material Payment Bond.

4.50.5 Bid Financial Security

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  1. The decision to obtain bid financial security should take into account the following:
    1. the extent of bidder prequalification possibility;
    2. the type of work and custom of the trade;
    3. the likelihood of attempts to withdraw;
    4. the consequences of the failure or inability of the bidder to enter into a contract.
  2. The amount of bid financial security must be the minimum required to ensure that the bidder enters into the contract. SACC Manual clause E0004T must be used in conjunction with E0008T when bid financial security is required. When clause E0004T is used to require bid financial security and a contract financial security is required under the resulting contract, it must be used with E0003T, E0005C and E0008C. When clause E0004T is used to require bid financial security, but no contract financial security is required, clause E0009T must be used.
  3. If the estimated contract value is $250,000 or less, the security should not exceed 10 percent of the bid price. In the case of larger acquisition values, the contracting officer will determine the percentage.
  4. Any letter of credit received by Canada must have an appropriate expiry date. The letter of credit should not have its expiry date coincide with the projected cessation of the risk that it covers. For instance, the expiry date stated in the letter of credit should not be the same date as the one projected for the contract award. The expiry date should allow for a comfortable turn-around time from the estimated date of the contract award, to ensure that the contracting officer is satisfied that the bidder has discharged its obligations for which the letter of credit was provided. If the bidder has not met its obligations, the contracting officer must have sufficient time to prepare and present the required demand for payment under the letter of credit.
  5. To prevent problems in obtaining contract financial security (if required) at a later date, the solicitation must specify that, if the required contract security is not provided within the period specified, a security deposit (government guaranteed bonds, bills of exchange, irrevocable standby letters of credit) given as bid security will be forfeited or payment demands will be made against the bid support letter of credit. The amount forfeited must not exceed the difference between the bid price and the amount of the contract entered into by Canada. This provision is also contained in form PWGSC- TPSGC 504.
  6. Unless the acceptable form of security is limited to security deposits (government guaranteed bonds, bills of exchange, irrevocable standby letters of credit), the solicitation must include a list of insurance companies (Treasury Board Contracting Policy Appendix L - Acceptable Bonding Companies) whose bonds may be accepted as security by the government, together with the applicable surety bond form. Deviation from the surety bond form will be permitted only with the prior approval of Legal Services.
  7. For more information on procedures on the handling bid security, consult Annex 5.2: Handling, Custody and Safekeeping of Financial Security/Handling of Bills of Exchange. The contracting officer must instruct the specified bid receiving unit of the handling of bid securities received.

4.50.10 Contract Financial Security

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  1. For the successful supplier, the contracting officer must ensure that bid financial security is not released until the contractor provides the required contract financial security. The decision to obtain contract financial security, and the amount of security required, should take into account the following:
    1. the type of work and custom of the trade;
    2. the consequences of the failure or inability of the contractor to carry out its contractual obligations;
    3. costs associated with the provision of security, compared with the degree of risk involved.
  2. For construction contracts with an estimated value of $100,000 or more, contract financial security must be sought.
  3. Decisions as to whether and how much financial security will be required should be based on the circumstances of the individual procurement. Some businesses may encounter difficulty in obtaining certain kinds of security; therefore, contracting officers should be sensitive to this and not require unreasonable contract security. In certain cases, perhaps an advance form of security may not be needed; holdbacks in contract payment may suffice. Treasury Board recommends that financial security not be considered until the estimated cost of the contract exceeds $100,000. However, issues relating to the nature of the requirement are usually more important than the dollar value.
  4. When the decision to obtain contract financial security has been taken, the contracting officer must stipulate in the solicitation documents that contract financial security will be required. When the contractor is required to provide contract financial security after contract award, SACC Manual clause E0007C must be used in conjunction with E0008C. When the successful supplier must provide a security deposit as contract financial security, clause E0005C must be used in conjunction with E0008C.