The value proposition of surety bonds in Canada has become stronger in recent years, according to Steve Ness, president of the Surety Association of Canada (SAC). While their role in safeguarding governments, taxpayers, and subcontractors is well recognized, Ness emphasized that their wider economic impact is often overlooked.
The latest study by the Canadian Centre for Economic Analysis (CANCEA), commissioned by SAC, explored the broader effects of requiring surety bonds on public construction projects nationwide.
It found that beyond protecting against contractor failure, bonds contribute significantly to the economy by supporting GDP, creating jobs, and enabling governments to recoup much, if not all, of the premiums they pay for bond protection.
One of the most important but least visible benefits of surety bonds lies in prevention, Ness told Insurance Business. Before issuing a bond, sureties conduct extensive due diligence on contractors, scrutinizing their financial strength, track record, and ability to deliver.
Unlike traditional insurance, which might adjust premiums to reflect higher risks, surety bonds operate on a strict pass-or-fail basis: a contractor is either qualified to take on the work, or they are not. This rigorous prequalification dramatically reduces the likelihood of default, making bonded contractors far less likely to fail compared to their non-bonded counterparts.
“If you’ve got a driver with a bad driving record, they are going to pay a lot more in premiums, but they are going to get insurance. It doesn't work that way with sureties. If they are qualified, they’ll get the bond. If the surety thinks it’s going to suffer a loss – they won’t go near it,” Ness said.
Surety bonds, he added, also create efficiencies when things do go wrong. If a contractor defaults, the surety steps in quickly to bring in another firm, provide funding, or to otherwise ensure the project continues.
This reduces costly delays and helps public assets – whether transit lines, hospitals, or water treatment facilities – come online faster. By keeping projects on track, sureties generate economic activity sooner, supporting local employment, tax revenue, and the broader benefits tied to infrastructure delivery, Ness said.
Another key advantage is protection for subcontractors and suppliers. When a contractor fails, it is often smaller firms down the chain that suffer most, facing unpaid invoices and potential insolvency.
Payment bonds address this risk by ensuring that subcontractors and suppliers still get paid. This financial safeguard helps prevent bankruptcies, protects jobs, and stabilizes entire supply chains that would otherwise be vulnerable to ripple effects from a major contractor’s collapse.
“They move in quickly and keep the job going by bringing someone else in. They’re protecting jobs and creating additional ones in the process,” he said.
Ness also stated that the benefits of surety bonds are magnified during downturns. In periods of high insolvency, surety bonds not only prevent losses but deliver a strong return on investment for governments. Studies show that while public owners recover a portion of premium costs in stable times, the recovery multiplies in difficult conditions, sometimes generating several times the value of the original premium, he said.
By cushioning against insolvency shocks, keeping projects moving, and maintaining employment, surety bonds help governments emerge from recessions or industry downturns with less disruption and greater resilience, he added.
“When times are good and you don't have that many insolvencies, a government will recover 43 cents for every dollar they pay in premium; and in bad economic times (the times we're going into now), they'll recover $3.02 for every dollar they pay in premiums,” he said.
Ness noted that the impact and visibility of surety bonds varies depending on the economic profile of each province. Alberta, for instance, is currently experiencing strong growth with a crowded pipeline of projects, where construction capacity struggles to keep up with demand, he said. In contrast, Atlantic Canada tends to see steadier, more modest levels of activity, avoiding the sharp booms and busts common in other regions.
British Columbia, meanwhile, faces challenges as fiscal constraints limit the government’s ability to move forward with certain infrastructure projects, while Quebec recently revived a major development that had been on the brink of cancellation, Ness added.
Ontario remains a leader in infrastructure investment, with consistent spending on large-scale public projects. These regional differences highlight how surety bonds support diverse local economies, providing stability whether activity is booming, steady, or facing financial strain.
Taken together, these findings reinforce the broader message of the CANCEA study: surety bonds consistently deliver value regardless of economic conditions or local investment cycles, Ness said.
“We found that the impact of surety – and the additional due diligence its use ensures – is generally positive, regardless of which scenario runs,” the study said.
