What every contractor needs to know about performance bonds in Ontario – Zehr Insurance Brokers Ltd.

How the performance bond protects the project owner and what that means for you 

The owner’s interest in a performance bond is simple and absolute: they want a finished building, road, or facility, delivered according to the contract they signed. They do not want to go back to the market, re-tender, and pay a premium to a new contractor to pick up abandoned work. They do not want to manage a construction site themselves. They do not want litigation. 

The performance bond is the mechanism that removes the owner’s exposure to that outcome. If you fail to complete the contract, the owner can call on the surety to step in and get the project finished without starting over, without losing their financing timeline, and without bearing the cost of completion out of their own pocket beyond the remaining contract funds. 

Every action the surety takes in response to a performance bond claim is aimed at that single outcome: a completed project. The investigation isn’t bureaucracy. It’s the surety confirming that a valid default exists so they can respond correctly. The completion arrangements aren’t punitive; they’re the mechanism for delivering the project the owner contracted for. The negotiation with the owner about remaining contract funds isn’t the surety protecting itself at your expense and it’s the process of minimizing the net cost of completion so that your indemnity exposure is as small as it can be. 

This is the broader purpose of the performance bond within Ontario’s contract surety system. The bid bond qualified you and committed you to your price. The L&M bond protects your supply chain and keeps liens off the owner’s land. The performance bond is the guarantee that the project gets built to the contact specifications.  

Contractors who understand this and who treat the surety as a partner in project delivery rather than an adversary, are the ones who navigate performance bond situations with the least financial damage. The ones who avoid the surety, filter information, or try to manage the situation on their own tend to find out that their indemnity agreement is both ironclad and expensive.