Canadian Study Reaffirms Protections, Value Provided by Surety Bonds

Surety professionals can cite many examples of the value of surety bonds from their own experiences, but they generally don’t have large scale, empirical data to quantify those benefits. A recent study from the Canadian Centre for Economic Analysis (CANCEA) has provided that kind of hard data for the Canadian market.

CANCEA, a highly respected independent and interdisciplinary socio-economic and analytics organization, analyzed 20 years of premium and loss data from major surety companies in Canada using its “Prosperity-at-Risk” platform. It found that mandating surety bonds can help protect a country’s or province’s gross domestic product and create jobs while making it possible for governments and public agencies to recover some or all of the premiums paid to the surety company.

The May 2025 CANCEA study was funded by the Surety Association of Canada. Unlike the U.S., Canada has no national surety mandate, and surety bonds are currently required by law only in three provinces, Ontario, Quebec, and New Brunswick. So SAC has been working for many years to get the Canadian federal government and provincial governments to adopt legislation that makes surety bonds a legal requirement for public infrastructure projects.

“We are presently working to bring it into two western provinces, Manitoba and British Columbia,” said Steve Ness, SAC President. “The vast majority of public bodies do require bonds as a matter of policy, but as we all know, policies can be changed or waived more easily than legislation can.”

The surety industry can use the data provided in the CANCEA study in its efforts to convince legislators that surety should be required at the federal level and in the remaining provinces.

“Surety is a niche industry and a niche product, so anything that we can get in terms of data, documentation and studies will help us support the issuance of bonds,” said Steven Hastings, Senior Vice President, Surety at Liberty Mutual Canada. “There are still a lot of public and private owners who really don’t understand the product, and in a lot of cases when they are looking for performance guarantees, they tend to default to a letter of credit. The study is great from an educational standpoint.”

The main CANCEA report focuses on the impact of surety on a national level, but CANCEA has also produced separate reports for six key regions in the country: Atlantic Canada, Quebec, Ontario, Prairies (Manitoba and Saskatchewan), Alberta, and British Columbia.

Social and Economic Values

CANCEA’s May 2025 report is an update of a 2017 CANCEA study that SAC also funded.

“The 2017 study was really the first time that we looked at getting data to support what we all felt was true: that bonded projects are good for the government, good for taxpayers, good for employment, good for contractors and good for owners,” said Sheila Thompson, CIP, President of Rosenberg & Parker of Canada and NASBP Third Vice President. “The study quantified that for us, and gave us statistics and data that we could use as an industry when we were talking to stakeholders within the industry about the importance of bonds.”

The SAC board felt that the time was right for an update since two provinces had put mandatory bonding in place since 2017. “Contract models have also changed in the last eight years, so we’ve now got integrated project delivery or alliance models, which are models where the owners and the builders and the designers are all sitting at the same table and working together towards a contract that makes sense,” Thompson added. “It’s helpful to have insights into what’s happening out there with those new contract models.”

The 2025 report uses the aggregated, anonymous data compiled by Canada’s seven largest sureties to compare a scenario where surety bonds are used for projects to a scenario without those bonds in place. It measures the results across a variety of economic indicators, analyzing the impact that surety bonds would have in times of economic stability (low default risk) and during periods of economic volatility (high default risk).

“The study found that when a surety bond was in place in times of high default, they were able to get the get the job done, pay the trades, and avoid the what we call the insolvency ripple effect. That’s when a major general contractor goes down, takes subs down, and causes displacement in communities. With people losing their jobs, the economic activity would shrink because there’s that much less input into the local GDP and the national GDP,” Ness said.

One key feature of the update is the inclusion of data that measures the social value of bonding and its overall impact on the well-being of the population.

“The first study was purely economic, while this study shows a total value, factoring in economic and social benefits. The results are really good in terms of supporting the value of surety bonds and showing all levels of government that the money that they put into surety bond premiums are being returned in a very positive way to the economy,” said Hastings.

The CANCEA report also shows the value of the processes that are required by surety companies before they will bond a contractor. It found that an unbonded contractor is 10 times more likely to fail than its bonded counterpart. “We’ve had our pre-qualification function dismissed for years, with people saying that we don’t really pre-qualify. I’ve argued that sureties do pre-qualify, and they are pretty good at it. This study bears that out,” Ness said. Today’s sureties use very sophisticated predictive modeling to determine whether or not a contractor should be bonded.

Strengthening Surety’s Case

The data in the CANCEA report will help the surety industry make a strong case for mandatory bonding at a critical time.

Hastings said there is approximately $160 billion in infrastructure investment slated in Canada over the next five years. “This is where one of the biggest benefits of surety is, those larger infrastructure projects that feature significant economic and social value. The argument just becomes stronger for mandatory bonding when you’re talking about jobs of this size,” he said.

It also demonstrates to owners that surety bonding is a good idea no matter what the economic conditions. “When times were good, as they have been over the past number of years, owners can ask why they are spending money on surety bond premiums when insolvencies are low,” Hastings said. “But now, in our current environment, there is a lot more uncertainty. Bankruptcies are elevated and claim activity in the bond industry is elevated. The CANCEA report notes that a non-bonded construction enterprise is 10 times more likely to become insolvent than a bonded company. So coming out with a study like this is great timing, since it acts to reinforce the value of suety.”

The surety benefits outlined in the CANCEA study are especially powerful when they are set against a backdrop of failed infrastructure projects that didn’t have surety requirements. One example is the municipality of North Vancouver on the west coast of Canada.

“The municipality contracted a major international infrastructure contractor to build a wastewater treatment plant. The contract was for $700 million,” said Ness. About four months into the work, the contractor told the city it would have to expand the footprint of the plant and increase reinforcement because it was located in an earthquake zone. The contractor and the municipality went back and forth for a while, but eventually the contractor was replaced. The municipality was left with a shortfall of approximately $2.6 billion to cover the additional building costs and residents’ property taxes will rise over the next 30 years to pay for it.

The municipality’s policy had usually been to ask for surety bonds for projects like these, but because this job was so large and the contractor was “too big to fail”, the bonding requirement was waived.

The findings in the CANCEA report can be used to show both private and public owners that a default scenario could have been avoided if surety bonds had been in place, and that the premiums for those surety bonds would likely have been recovered through social and economic value. It should also be helpful as SAC works towards getting mandatory bonding in place in provinces such as British Columbia and Manitoba.

“This is a very, very important document as our association is having these conversations,” Hastings said.

For additional details on the findings of the CANCEA report, visit the SAC website.  

Highlights of CANCEA Study on Surety Bonds

Using its “Prosperity-at-Risk” platform to analyze 20 years of surety data in Canada, the Canadian Centre for Economic Analysis found that:

• Pre-qualifying contractors works A non-bonded construction enterprise is 10 times more likely to become insolvent than bonded construction companies. This demonstrates the value of the surety due diligence process.
• Surety protects the GDP For every $1 million in premium paid on public infrastructure projects, surety bonds protect $27.24 million of GDP in high-risk scenarios (volatile economic times) and 3.85 million of GDP in low-risk scenarios (stable economic conditions).  
• Surety bonds are a fiscally responsible choice In high-risk times, governments recover $3.02 in broad tax revenue for every $1 spent on premiums. In lower-risk scenarios, the recovery is $0.43 in tax revenue.
• Surety helps keep people employed: In low-risk scenarios, surety bonds protect 29.4 full time jobs for every $1 million in premium. In volatile times, that number goes up to 207.6 full time jobs.
• Coverage levels are important: Governments enjoy the highest economic and fiscal benefits in relation to premium costs when public infrastructure projects are bonded with both performance and payment bonds.