The purpose of this study was to assess the impact of construction surety bonds on the overall economy across Canada. CANCEA reviewed more than 150,000 bonded projects completed over the last 20 years by more than 10,000 construction firms in order to examine the economic ripple effect of more than 3,000 contractor defaults and analyze the impact that surety protection. The findings confirm the value proposition of public sector bonding to taxpayers by way of strengthening the broader economy and bringing stability and certainty to the public construction process. Below is a summary of the highlights:
- The Value of a Surety’s Due-Diligence: A non-bonded construction enterprise is 10 times more likely to become insolvent than bonded companies.
- Protection of GDP: Even in the current stable construction environment with microscopic interest rates and insolvencies at a 35-year low, surety bonds protect $3.5 million of GDP for every $1 million of premium paid on public infrastructure. In more volatile times, this impact is magnified.
- Protection of Jobs/Wages:Under current economic conditions surety bonds will protect approximately 25 full time jobs or $1.5 million in wages for every $1 million in premium paid. In the tumultuous early 90s, $1 million in surety premium on public projects protected about 200 full time jobs or $12 million in wages.
- Fiscally Responsible – Revenue Recovery on Premiums Paid: Under status quo economic conditions, governments will recover $0.40 in tax revenue for every dollar paid out in premium. In a high-risk economic environment such as seen in the early 90s, governments show a net gain, recovering $3.00 in tax revenue for every premium dollar spent.
The study demonstrates that the size and scope of the economic benefits generated are largely dependent upon the extent to which bonds are used to protect construction risk on public infrastructure. The optimum benefits are realized when 100% of public work is protected by performance and payment bonds.
The report is available for download at the Surety Association of Canada website.