Construction Bonds Explained: How Surety Pre-Qualification Works in Atlantic Canada (Intact & FCA Surety)

0:03All right, welcome back to the Atlantic Construction Podcast. Today we have a special bonding and surety episode. We have with us here in the studio in Halifax Ryan Brady and Jen Love. Ryan and Jen are both with Intact Surety. Ryan, before joining the surety industry, grew up in Dartmouth and he's an SMU grad — I am, I've been there myself — and lived close by at the moment. He began his career in the banking industry, transitioned over to the surety industry in

0:372003 as an underwriter, and he spent the last five years with Intact as a specialist and manager. We also have Jen Love. Jen's also part of the surety underwriting team at Intact — born in Miami, Florida. Yeah, it's a long way from home, a long way from home. Moved every couple of years with a military family growing up and landed here in Halifax — at what point? Is it 2005? Seventeen? No, no, '17. Okay. Well, yeah, and after graduating as well from Saint Mary's University,

1:13her career starting in '07, and she is currently with Intact as a surety specialist. We also have with us today Andrew Cartwright from FCA Surety. Andrew is zooming in from Toronto — I believe your office is downtown, is that correct, Andrew? Yeah, just a young Davisville in midtown. Great. And Andrew was in the surety industry for about 15 years, working for a large national surety company in Trisura. He moved to Halifax to start up the Atlantic branch of Trisura and ultimately returned back to Ontario

1:52in 2015. Andrew is now with FCA Surety as of September of 2020 and is the VP of surety, managing their surety operations across Canada. FCA is a 100-year-old insurance broker specializing in construction insurance and bonding. Andrew prides himself on being a member of his client's advisory team and not only providing bonds but helping contractors grow their business, managing risk, and dealing with complex business issues. Thanks for being here, guys — really appreciate it. For sure. Awesome. Very happy to be — that's quite the intro! Yeah, that was impressive, good job.

2:30Thanks for joining us from Toronto, Andrew. I think it's a neat dynamic that we have — Intact as a surety company and FCA as a broker — to kind of cover the bases and try to get a good perspective on the bonding and surety side of things. I think that's a great start. You know, for some of our listeners, whether they're from general contractors or subcontractors, a lot of people are familiar with the terms

2:57bonding and surety, maybe don't know or haven't drilled in enough to know exactly what it is — filling out the paperwork and understanding a few things — but maybe it's an opportunity for kind of a Surety 101, Bonding 101, starting with the difference between insurance and surety, just as a point of reference, and kind of move from there. So if anyone wants to chime in and kind of roll that out — yeah, I could jump in on that. Sure. We often explain this to our clients all

3:29the time — the difference between surety and insurance. At the end of the day, if you're a contractor and you're pulling a request for tender, you're pulling some project specs, you're taking a look at that, and if you don't have it set up already you're saying, "Look, I gotta get this stuff." You're not always the expert; you're out there building and creating projects. So in the simplest terms, insurance is an insurance company taking a look at the chance of something happening — for

3:57example, your house burning down — and they're saying there's a one-in-a-thousand or one-in-a-million chance of that happening, and X is the premium for that risk, and if a house burns down they pay up that premium and they rebuild your house. Surety is a little bit different, right? It's a three-party arrangement. You have the surety, you have the owner of the construction project, and you have the principal, which is the construction company. In essence, what the surety company is doing is they're lending

4:24their balance sheet to the contractor and saying to a project owner — like NSTIR or a city housing department — they're saying this contractor is good and they're going to complete the work in accordance with the terms and conditions of their contract. As long as they do that, everything's fine; if not, then you hit a few bumps in the road. But that's in essence the difference between the two products. Tell us a little bit just the basics of how a bond works — how a surety bond works. Yeah, there's

4:57a few different types of bonds — performance bonds, bid bonds — and I think the easiest way to explain it is to kind of walk through the process where the contractor sees a job that they want to bid on. That's when they need to look for a bid bond, which they're coming to us — well, first they're going to Andy, but then it eventually comes to us — saying, "You know, we want to bid this job, we need to put up a bond that guarantees that we will enter into a contract if awarded."

5:26And that's where we're saying yes — we've vetted these contractors, we've pre-qualified them, and we're vouching for them. That's what it comes down to: we're willing to stand behind these contractors. When they're bidding a job and they decide not to enter into the contract for a multitude of reasons, that's when the bid bond penalty may come into play. If the owner, like HRM or NSTIR, has to go to the second bidder, right, there's going to be a difference in the tender price.

6:02That's where we come into play on the bid bond. So essentially you're protecting the financial interests of the end consumer.

6:14On the bid bond itself, it's really the most important time for us as a surety because you're pre-qualifying that contractor at that point — because you're saying if they are the low bidder, you're actually going to enter — they're the low bidder, yes — if they enter into that contract, you're going to take on that risk. So the bid bond for us is probably the most important time because that's when you're doing all your vetting, you're looking at the tender specs, and you're reviewing everything, and like you

6:37said, you're letting the owner know that we've done all the work on our end, we're comfortable supporting this contractor. And these bid bonds are for general contractors where they're bidding to the owner, and a performance bond would be more for a subcontractor underneath the general — is that correct? Most often, yeah. I'd say there are cases too where generals — and Andy may be able to jump in on that too — but where generals may want to see bid bonds or agreements to bond from those sub-trades as well

7:04to make sure that their prices are solid. Yeah, you're seeing it more and more — like it's a great point, Ryan. As many contractors know, the trend of prompt payment is really sweeping across Canada. It started here; Ontario and New Brunswick have it with the Construction Remedies Act, and there's a number of other provinces that are going to do that. So as part of that, prompt-payment bonding has actually become legislated — it's become law — and so in Ontario, for example, any publicly funded

7:34project over half a million dollars must have a bond. And so you're seeing more use of bonds from public owners that didn't always ask for them, but that's cascading into GCs and private owners like developers that are now saying, "Maybe we should use this as a tool to mitigate risk for ourselves." Right? Because from the standpoint of a GC — like if you're on a job and you've posted a bond to HRM — ultimately you're managing the project, but if you have an issue with the sub-trade, HRM's not going to say, "Oh, we

8:08understand your electrical trade is having issues" — they're going to look to you as a GC and your bond. So as the GC on that project you want to be making sure that you're pre-qualifying your sub-trades correctly, you're vetting them as best you can, and then in addition getting some coverage — getting a bond from that sub-trade — so that if it's a key critical-path component of the project you have some coverage there that you can rely on if there's a problem. Right? Yeah. Guys, outside the

8:39public tender realm — you know, Andrew, you just mentioned private — you're seeing a lot of that in Ontario, and are we seeing that more and more here as well with private developers with large projects, or not as much? Not so much. Not enough at all. Because if you look around — just look around downtown Halifax — yeah, most of it is all private and I don't even know if much of it is bonded at all. It definitely wouldn't be. So what's the risk there? I mean,

9:04what kind of trouble can that cause if those large projects are not bonded? It would depend on the obligations under the contract. For instance, if there are any hard deadlines to be met, I would imagine a lot of these larger developments — the banks and the financing companies would want those jobs to be bonded to ensure that the money going in isn't going to be thrown away. And that money is there to protect the end consumer, the owner of the building project, where if

9:39someone couldn't complete the work, someone else can step in. Absolutely. And that money is there to help complete the project, continue the flow of work. Yep, that's correct. Our bonds are always outstanding — our bonds are in effect for the owner; they're there for their benefit, they're the purchaser of the bond. Right. Yeah, it does two things, Dan. Number one, it protects the owner. So from a developer's standpoint, if they're not getting bonded and they have an issue with one of their contractors on site

10:09and they have to sort of go through whatever remedies they have in their contract — defaulting and terminating that contractor — they've got a half-built project, they've got to find another contractor that's willing to come in and complete that work, and it's highly unlikely they're going to be willing to do it at the same price as the original contract. There's some financial loss. And then in addition, from the contractor's perspective, the coverage is for the owner, but what bonds do is they allow contractors to separate themselves from

10:38others, because as Jen said, they've got to go through that pre-qualification process. So a bond company is going to look at your team, right — like what does your estimating team look like, how long has the business been around, what's the project management expertise, how do you tackle projects, what's the financial wherewithal of your company — and so if you can go through that and secure a bond, you're going to be bidding against a smaller pool of bonded contractors to pick up that work. So

11:07there is a benefit there to the contractor as well. Yeah, thanks for that, Andrew. Maybe — you know, I like to use the analogy of a mortgage broker example with how the process works, and FCA being a broker, Intact being a surety company. Andrew, you just mentioned how you'll look at a company's systems, you'll look at their background, their history, their project history, and those kinds of things. Maybe just talk a little bit about the broker-surety relationship when a

11:38contractor comes to a broker, and then the surety company has to dissect some information about whether it's just the contractor or whether there are other variables that come into play when you're going to decide to go forward with a surety on a bond, and how that process works. That's true. Yeah, I think Intact will have a bunch to say here as well, but at the end of the day that relationship really works at its best when the

12:06broker and the surety and the contractor are all working together and that relationship is strong. But having sort of been in Atlantic Canada and done surety there, it's very different than Ontario. There's still a lot of what we call direct-ish relationships where contractors still work with the surety companies and the broker's not always involved as much. And really what the broker does — and I've seen a lot of those deals — is they work really on behalf of the contractor. They have a really good sense of what all the different

12:38markets are doing — so Intact and its competitors — and they can get a sense for where is the best fit for that contractor, where are the best terms that are out there. And in addition to that, advising them on how to manage risk — like we sort of talked about at the beginning — and how to grow their businesses. Because at the end of the day, brokers are working with clients across the industry; they're often working with lawyers and accountants as part of that process. So they really have

13:04a good sense of the landscape of construction and sort of what the cutting edge is in any given field. That was a really good summary, Andrew. I just wanted to kind of go back to when you mentioned in the beginning the three-party arrangement — that's the arrangement on the bond itself, yes. But like, our broker is so key to that relationship and to the whole structure. We just — we really wouldn't,

13:30you know, have a structure without them. So I just wanted to make a point that — unlike insurance where we are direct writers — we go through brokers like Andrew, and they're very key to our business because again they're the ones that are bridging the gap. They know the markets — they know all the markets. They know the contractor, they're the biggest advocate for both sides. Surety, yeah. And so for you guys that are

13:57at Intact — Jen and Ryan — you know, you guys are taking things into perspective that the market and the current things like COVID, labor shortage, supply chain and stuff put more onus on the bonding that you're underwriting. So all those things come into play as well, right? And do those things affect premiums? Maybe speak a little bit on those things. And do those things affect premiums? You know, typically for contractors it's between 0.5 and five percent — I

14:29think maybe, or usually around one percent something like that? It's a good standard — that would be — that's a little high.

14:41How are the premiums affected by these things, these variables that are external? Sure. Yeah, first and foremost, I think again going back to the difference between bonding and insurance — insurance, they have actuaries to determine how much we're going to charge based on the risk. For us, the first step is yes or no. We're not going to accept every risk; we're going to pick and choose what our good risks are. And then pricing usually revolves around their creditworthiness.

15:13We're looking at their balance sheet, we're looking at their past experience. And when you're talking about things that are happening externally — COVID, labor shortage, that sort of thing — that's where the relationship is key. Not just with us and the broker, but us and the contractor, and sometimes even the owners. You know, we're having conversations with the different levels of government to get that data, right. That's going to be hard data to confirm as well — I mean, it's coming from the relationships that you have, or

15:43is there — Atlantic Canada is relatively small. Yeah, thank God, small community. And I'm sure Andy has a better appreciation, having been playing in both fields — both in Ontario and here. We get to have a lot of these one-on-ones. We're talking about COVID, we're talking to our contractors and their brokers, finding out face-to-face how do these affect them directly, how does it affect them indirectly, what steps have they taken to mitigate a lot of these risks — in terms of what happens if you can't get on site, what

16:19happens if you can't find people to fill those roles, what if an outbreak happens while you're there — all these factors have to be taken into consideration. Supply chain management was a huge issue; tariffs with the price of metal became an issue. And all these things — we're saying, okay, which of our clients, which of our partners are affected more so than others? We're looking at the ones where we have more of a vested interest, the ones who have quite large

16:51capacity — they're obviously more exposed than others. Yeah. Andrew, maybe just to piggyback off what Ryan just said — you've worked on both sides, in Toronto with a large firm and in Atlantic Canada growing another large firm. Just maybe talk a little bit about your experience and the differences in the markets. Yeah, you know, at the end of the day the product — the bond itself — is pretty much the same. There are a few owners that have some minor differences from

17:21market to market, but the product itself is really the same. It's sort of the way that the business is transacted that I think is a little bit different. I think in Atlantic Canada, like I said, there's still some of those direct relationships where contractors are working with the surety and the broker's not always involved as much there.

17:45Sometimes that works and sometimes it doesn't. And I think at the end of the day, if you don't have that third party there that's involved in the deal and determining whether or not that makes sense — and where that deal sits in relation to the market — you might be doing yourself a disservice. And I think just because it's a little bit of a bigger market in Ontario, you get a bit more specialization. So in Atlantic Canada, where you get brokers that do sort of general

18:16— you don't get as many that are true full-time surety experts — right, that you will get in the Ontario marketplace. What are some of the ones in Atlantic Canada that would be experts in that, other than Intact? Would be Western Surety, Intact — some are competition, yeah, yeah. So Western Surety, we have Travelers, there's probably Sovereign — those are the major ones, yeah, that take up most of them. Yeah, sorry, I know I cut you off there, Andrew — please continue. I was just

18:44yeah, totally. And so I was more talking on the broker side of things. When you don't have that specialist surety broker, it's almost like having your car mechanic fix your boat, right? You can probably struggle his way through it but he's likely going to miss a lot along the way. And so I think that's a little bit of the difference. And it's slowly starting to change. I think the Atlantic market is growing — you're seeing some pretty solid population growth,

19:14especially in Nova Scotia. And like Jen and Ryan talked about, tons of development interest in Halifax, tons of construction there. So you're starting to see the Atlantic market become more sophisticated, and because of that there becomes more of a demand for specialist surety brokers to get involved in those deals and help contractors navigate what bonding looks like when you're doing a P3 project, or whether you're doing a joint venture, or whether you're getting into a complicated or novel field of construction. So

19:48yeah. Maybe — I know — if we want to start talking about the financial realm or payments, there's probably no end. But just from a simplistic perspective: a subcontractor with a performance bond bidding to a general on a bonded job — within their bid, they're carrying a one-percent allowance because that money is being paid, and obviously that's not money that's coming back to them, right? What about the payments? They're paying upfront and that money is

20:19going to a money pool for the owner, and the same thing's happening with the bid bond from the general — and all those payments are happening before the project starts. Or right at the start? Yeah, no, you're right, those are upfront costs, right? For sure. And you know, it all works up the line and also works down the line, in a sense where it's an upfront cost for the owner because they want that bond up front — they want to make sure that it is covered. They're the

20:46end user. And should the general want that extra assurance, then they'll get it from their subs as well. And again it ends up being a flow-through, right? And so this is an issue outside of the public domain with private developers — whether or not they want to spend that extra money to be bonded and be more protected. That's usually what happens at times — they just don't want to put that money into that protection. But I mean, for one percent, it's a

21:11pretty good thing to have, right? So it's one percent of a $50-million development or something. And that's where you can even get into — like sometimes they'll use letters of credit instead, for security. And you know, the bond has a lot more benefits. Only because at the end of the day, the bond is in place for the owner, but if there's actually a default, the surety company is going to

21:36do an investigation — the claims team is going to do an investigation — and see who's right or who's wrong. They're going to go back to the terms and conditions of the contract, whereas a letter of credit won't do that. A letter of credit outstanding may be one percent of the contract value — and is that, if there's a true default, actually going to get that building built? Because at the end of the day,

22:00what the owner wants is a building — they want a building built at the end of the day — and a bond is going to do that. It's going to keep things moving. It's going to either pay out under the bond penalty or find a replacement contractor, or a number of different remedies. But with a letter of credit, the owner is just standing there holding money — but what's that really going to do for them at the end of the day? Yeah. And that's

22:21holding back your cash flow when your building's not open. To me, that almost creates an imbalanced relationship where the owner is holding that hard security — they're holding all the cards. The bond balances it off a little bit better because now we basically have two sets of customers in front of us. We have our contractors — and those are a number of customers, yeah, oh yeah — and we represent them and we vouch for them and we champion for them. At the same time, those owners are also our customers because they're the

22:55ones that are asking for the bonds; they're the ones that want the protection. So we have to make sure that the relationships between all three parties stays as fair as possible. Definitely. I need to add — Andrew, yeah? I think it's a great distinction, right? There are some competing products out there to watch. You've got letters of credit, you've got bonds, you've got people asking for cash. Like Ryan said, a letter of credit — or if you give the owner cash and something like this happens —

23:25they can just cash that at any point if they think there's going to be an issue with the project, and there's nothing you can do. So they have a pretty big hammer there. Whereas the bond itself is a default instrument, right? So once the owner says, "Hey, I got a problem on this project," the surety is going to go into investigation mode. They're going to ask the contractor for their side of the story and their documentation; they're going to ask the owner for their side of the story and their documentation, and

23:51look at the contract and determine whether or not there's a real problem there. And after that, if there is, then they'll make a payment. So it sort of evens that playing field a little bit between the owner and the contractor, while still providing that owner with a really solid, highly rated guarantee. Can you give an example of some of those investigations that you've been either kind of collectively part of in the past — whether it's a contractor who didn't use the right material, or one that couldn't

24:21carry out the work for any number of reasons, or just any specific examples to give on that front?

24:29It's different from insurance — it's not a frequency scenario. When surety companies pay out, it's more of a severity situation. So when you're working with a surety company — and you guys can speak to this as well — you're often getting involved in disputes where the surety company's not actually making a payment. You've got a contractor that's frustrated, an owner that's frustrated, they're not seeing eye to eye, there's maybe delays in schedule, but there's not a default there. That makes sense, right? Because at the end of the

25:01day, it's pretty involved. They've got to take that contractor off the job, they've got to retender, they've got to get a new contractor in — that's not good for the contractor, that's not good for the owner, and that's not good for the surety. So those dispute scenarios tend to get worked out. So when you see real claims dollars get paid, it's typically an insolvency, right? Where the contractor is in real financial trouble and they're at that stage — once they're in that position, your options to help and to mitigate that

25:33become a little more limited as you work through that situation. I would agree with that. And I would say that the non-financial situations — that's one of the benefits of having a bond in place, because we can help navigate through that before there is a claims scenario. There may be a dispute, there might be a disagreement, and even the mention of getting the surety involved sometimes helps progress — sure, resolve that issue. Yeah. I would say it's kind of like getting a lien letter — you

26:08know, it's not there yet but it's like, "Hey, let's get things figured out." For sure. And we handle all of Atlantic Canada, so you're talking some bigger cities, some smaller cities and towns, and that sort of thing, where we might not be aware of the ongoing personality conflict between two individuals in another province until we get involved and find out one guy just doesn't want to do what the other guy is telling him, even though

26:34it's part of the contract. Yeah. Well, once you explain to them what the bond is for, why it's there, what our options are — a lot of times those situations get resolved pretty quickly. I would say nine times out of ten, any potential bond issue or claims issue is resolved before we even receive a letter stating that the bond is in default. Yeah. And once the sense of urgency is there, things like that, exactly. And like Andy said, it's the insolvency issues — it's when the

27:07contractor no longer has the ability to do the work that we have another set of challenges — whether that's a labor shortage or a cash flow issue or they can't buy the material or they can't pay and they're in financial trouble — any of those kinds of things. And that's a great point, because, and I'm sure Andy and Jen can both agree, when we're looking at our contractors initially and ongoing we're focused on their profitability, we're focused on their solvency and their

27:34liquidity. We want to make sure that they're able to meet their short-term obligations. The heavy lifting comes at the very beginning of a relationship — we're trying to learn as much about the contractor as possible in a very short period of time — and then after that it becomes a maintenance issue. Barring any out-of-the-ordinary events, it's a regular relationship. Yeah. And Andrew, Jen, and Ryan — you know, you guys are involved in the industry, but

28:04those outside the industry realize that some of these large developments — these are contracts that last anywhere from two to five years, or sometimes more. These are big multi-million-dollar, multi-year-long projects. So these are serious, serious agreements, and that's what you guys are there for — for when things get to the point where something needs to be corrected. And like you're saying, usually nine times out of ten that

28:34will happen. And that's quite a good point that Ryan made — the surety is a short-term creditor, and it's something for people to remember. That's why there's always ongoing maintenance of the client. We're not just looking at financial statements once a year, once in a blue moon — we're quarterly looking at financial statements, looking at work-on-hand reports, talking to them, looking at receivables, just talking to them about the

28:58marketplace. And they might have multiple bonds with you — a general contractor perhaps will have a number of different jobs with us on the go at one time, so a number of different bonds. Does that factor into each one? If there are multiple bonds in place already and another one's requested — is it being too busy, or maybe too much on their plate, as far as capacity is concerned? But Andrew, is that right? Yeah, I was just going to say — when we're setting up a facility, it's

29:27think of it almost like you're applying for a line of credit with the bank. The bank will determine what your maximum limit should be based on your needs and your qualifications. We do something very similar in trying to assess what that right number is. I think it's more of an art than it is science sometimes, because we have to take into consideration the needs of the contractor as well. If they only qualify for this much but they want this much, then there's an issue — or vice

29:54versa, you know, that makes it easier. If they qualify for more — yeah, that's easier. So they tell us what they plan to do in the run of a year, and if that falls in line with the financials and the other factors that we take into consideration, we may set them up a facility of X amount of dollars. As those jobs fill that program up, the available credit comes down a bit. Unlike a bank — and Andy can chime in if he wants — but

30:29even if we get close to that limit, it doesn't mean we're going to say no or stop or say, "Sorry, that's enough." We take everything into consideration. Maybe that limit that we currently have them at isn't enough for them — maybe they qualify for more. So we're always moving that needle, always moving that target depending on so many different factors, especially now with COVID. And well, let's face it too — prudence isn't always a virtue, and contractors — I

30:58mean, there are a lot of greedy contractors out there who want to do everything. And you guys are having to mitigate that as well and say, "Look, we can't assure you for this much work here with what we see on the back end." There's a lot of pushing the envelope, yeah. A lot of guys don't know when to say no — they want to keep building, keep growing, and do everything. And so based on historical data we have a

31:22general idea of what is too much and what's too little. We know at certain thresholds when the risk starts to increase. We do a pretty good job of managing that, and sometimes they're uncomfortable conversations. We may not always make the right call, but we're making the most prudent call because we're playing with Intact's money. That's right, that's what it comes down to — we're being paid to bet on the winning horses in the race. Yeah. And to your point,

31:59it's based on the three C's of underwriting — that's what we call it: character, capacity, and capital. Capital obviously is number one in the surety world. But if we have a client that wants to go after a larger job and maybe the financials don't quite cut it, if you have the capacity there and if you have the character — character is huge, it'll get you a long way — we can maybe push a job through that's a little bit larger if it makes sense. Yeah,

32:25if it makes sense. That will come down to your close relationship with that client, exactly. Relationships, relationships, teamwork. And I'm sure Andy can agree — if a contractor has the ability to demonstrate to us why it makes sense, and they can articulate that to us, chances are we're going to follow suit, we're going to agree with them. Would you agree with that? Yeah, like this is a great point, and one of the situations where a broker is so critical. Because as a

32:56contractor, it's not always a clear and even path to growth. Opportunities arise and you've got to take advantage of them when they come. Like Ryan said, every company is a little bit different — they're looking at risk a little bit differently and they've got to make calls that keep their firms in mind. And so what the broker does — especially a good broker, and you guys will see this — when there's a stretch project or a contractor's got a bunch of work on the

33:26go and they want to take on more, if you've got an expert on your side as a surety broker, they're going to know that hey, there are other options out there. Or maybe the surety company wasn't looking at this right — they weren't clear on the compositional work and there was some CCDC construction management not-at-risk work in there, or whatever the reason might be. They can get that leverage up temporarily, or they can find you an alternate home where they see the risk a little bit differently. So

33:54that growth period often for contractors is where they can see some pain, and where a true expert can help manage that process and make sure that you're able to pick up the opportunities that are difference makers for your firm. Like what we were saying before — you know, a lot of contractors, they are greedy and they want to do everything, it's true. But then there's also times where a large project might come up locally, and it might be

34:21a chance to mobilize all your volume of employees in one place, the schedule works out, but it's ten times the size of a job you've done before. But that's when the surety company — where they know your character and stuff like that — can come in there and back you and give you a chance to take that opportunity. Absolutely. For sure. Like, the majority of our clients are actually 20 to 25-year-long relationships, a lot of them are. So that plays a big, big role.

34:45When they want to do something a little bit outside of the norm. What about the differences on your guys' end with the different types of projects — lump sum, design-build, or CM? How do you guys approach bonds and surety situations? Are there differences in each category — where there's more risk than others? There is more risk than others, and we do look at each one with its own merits — I think that's the best way to put it.

35:17For example, design-build — we want to see a history of their ability to successfully complete design-build projects. We want to make sure that they have the engineers on their team. We want to make sure they have the right coverages, because again, in relation to a bonded project, if the insurance isn't adequate, the owner may try to go after the bond because of a design aspect. So the bond covers the contract — whatever the obligations are under that contract, that's what the bond covers. So

35:51there is an added risk for those types of contracts. I don't know, Jen, if you wanted to talk about any of the other types and how we may underwrite those differently. It goes back to your point there, Dan — you're talking about what causes losses, sort of where the issues are, right? We talked about bankruptcy, but then what's the cause of the bankruptcy? And I think at the end of the day, in most cases it's project issues. And the project issues can span a whole number of

36:23things — right from a job where the estimate wasn't right, to a labor shortage, to a material price escalation, to just not understanding the contract you were actually signing, right? So in the surety world, obviously the majority of the contracts that are bid for government entities are stipulated-price lump-sum contracts. But you've got design-build contracts out there, you've got construction management — and those, for a GC specifically, present different risks. For example, if a GC is signing a

37:01construction management not-at-risk, he's not holding the sub-trade contracts himself — the owner's signing direct contracts with the sub-trades, and the GC is going to manage the project and take a fee for that. The risk for a surety on a project like that is completely different than a project where they're signing a lump sum, doing all the sub-trade contracts direct, and managing them. Because at the end of the day in that scenario, if there's a sub-trade issue, that's the GC's problem. Whereas in a not-at-risk

37:33contract, it becomes the owner's problem. So there are subtle differences. And like Ryan talked about, if a contractor's backlog is getting really, really high and they see the next part of getting that next opportunity is looking at things like this — saying, okay, well, we know the backlog number is X, but what is that actually made up of? Where are these projects in terms of completion? What types of contracts are we looking at? Where is the contractor going for the next 12 months? And building that

38:07narrative that helps secure that next opportunity. I'm thinking of coming from my contractor background, just having experience with performance bonds and filling out the paperwork and trying to get it done a week before the closing date and then having to go maybe to Western Surety to get a seal and pick up the bond and drop it off at the general contractor's office or procurement office at the airport or Province House or something like that. But just thinking of it —

38:37what, that sounds like bonding was your favorite part of your day! What about the shift to digital bonds? Explain a little bit about that — that's a current kind of trend and I know a lot of contractors are seeing that now. It's not too current — I mean, it's been, I think across the country it's been definitely in play a lot more than it has in Atlantic Canada. I find that COVID really pushed through the digital bonding, but the

39:06thing is the two terms are used so loosely. Yeah, digital bond, e-bond, PDF copy, scanned bond, right? So you're reviewing these tender specs and yeah, that's how everyone's putting their contract — you're like, "Can I just email this to someone?" Or whatever — which one is it? But at the end of the day, a PDF scanned version is not technically a valid, verifiable bond. Because you can scan that off and someone can — even if it has a company seal and it

39:33scans well — the company name is on it, it's going to work and owners are accepting it, especially due to COVID. They're accepting things much easier that way because they can just email it in. But it's not technically a verifiable bond. So we are seeing some owners — HRM, for example, is one that's using that system. You have to go through a verifiable service provider, and through that provider, those bonds are going to be uploaded with verifiable signatures and seals, and

40:02going through the right process to get the bond to the right place. So those are the ones that technically are digital bonds — the verifiable ones. But a lot of owners haven't really shifted to that route yet and they're still accepting the scanned versions. As long as it's okay with them, that's fine with us — but technically they're not verifiable bonds. I've got a question: would you accept a photocopy of a $20 bill? That's a great analogy. It is, really, really good. That's how I explain it to

40:33them, right? Now, 15 years ago I think we started delving into digital bonds, so maybe it's more recent in Atlantic Canada. But necessity is the mother of invention, right? It wasn't until COVID that really pushed it to the forefront. I mean, there were some owners who were early adopters, some weren't. Again, maybe in other parts of the country there are larger municipalities that got on board earlier. I find when it comes to the change in process as far as bonding goes and what we do,

41:11I think we kind of follow suit in a lot of circumstances — if it's worked in Ontario, if it's worked out west, then we'll consider it. But I think COVID, really — everybody working from home, and yeah. So are we moving toward all digital bonds then? Absolutely, slowly, eventually. I think it's going to be more about us educating the industry and educating owners about what they really are. There are a lot of benefits to it. You can sit at your desk on the day

41:41of closing and just hit a button. Well, that's why I brought that up earlier — there are so many different cost savings involved, and it's environmentally friendly. Environmentally friendly! I mean, talk about verifiable — I had an owner contact me 15 years ago to ask me if a particular bond was real or not, because there was whiteout on it where something had been changed, but it wasn't done by the surety — it was done by the contractor trying to get a job that wasn't approved by the

42:28surety. At least that owner had the wherewithal to contact us directly — "Is this real?" Well, if it was a true verifiable digital bond, that wouldn't have been a question. Andrew, what percentage of the bonds that you're dealing with — or that you're seeing, I guess, as a broker — are digital bonds? In Ontario and the west, it's way more now. I think it wasn't too far different from what Ryan and Jen were dealing with in

42:57Atlantic Canada. Prior to COVID it was still a lot of paper bonds, which is hard to believe — like, we're in 2020 and we're still issuing paper bonds and mailing them around. As an industry we need to get our act together and sort of come into the 21st century, really. But slowly it started to happen and COVID was really a catalyst for that. And like we said, it's massive cost savings. Honestly, I can't tell you how many times over the years you'd hear contractors

43:26where the courier just didn't get there, right? Or the mail was slow and they missed their bid. And that's no good for anyone — that's not good for us, that's not good for contractors, that's not good for owners who aren't getting that bid in. And a lot of times it's not because the contractor's unorganized or unprepared — it's because they're waiting right till the last minute to adjust their numbers as well, right, for the tender closing date. Totally, yeah. And so this helps

43:54alleviate that. The bond isn't an impediment now. If you're using digital bonds, every owner in Canada should be accepting digitally verifiable bonds because it's good for everybody. Definitely, definitely. So you guys mentioned a lot of the things that are happening during the last couple of years and the things that you're paying more attention to — labor shortage, supply chain management obviously is a huge one, material shortages, all that kind of stuff. You guys are looking at the industry

44:23as a whole. And I know we talked off-air about how you guys are in bonding and surety with Intact and FCA, but your whole livelihood is dealing with construction and contractors. Maybe just talk about that unique dynamic, because you're not on a construction site helping build — but really you are helping build. If it's not for you guys, then a lot of these public and private jobs aren't happening. So you're definitely a unique player. Absolutely. And I think

44:52you'd both probably agree that our workload, our workflow, is dependent on the construction industry. When it's busy out there, we're busy; when it's quiet, we're quiet. Winter times, you know, we don't get laid off, but we get to take a breath and prepare for the next bidding season. Yeah, we're definitely following the same wave. And that goes for you as well, Andrew, with your position at a broker. Yeah, for sure. Like,

45:23I was thinking, as you guys were talking, that insurance is in a similar situation to contracting, right? It's not always doing a great job of attracting top talent. And for any young people out there thinking about careers, like in the trades and insurance, you can have a great career in that. Unfortunately a lot of people stumble into it, and when they realize after they've been in for a couple of years that it's a great career. But for me,

45:51having a numbers background and pairing that with construction was just a natural fit. It's just a real pleasure because you get to talk to construction owners every day — they're the ones often handling the bond aspect of things — understand their businesses, and have those sophisticated conversations. That's really a pleasure. And I think I've been in meetings with Jen and Ryan and I can tell they're the same way. They have that same passion for the business and see the same

46:23benefits and the enjoyment out of it. Every day is a little bit different — you never know what you're going to get into. That's what's so exciting about it. It makes it so different from just regular insurance — you never know what you're going to come across as you're running your day, the conversations you're going to have, or what's going to come across your desk. But that makes it fun. That's what sold me on it — it makes it fun. Yeah. You're there as

46:43kind of like the older brother to these contractors, just making sure they're there — you're there to protect them. That's a good way to put it. That's what I was going to say. So I'm going to say — you can use that in your next marketing campaign for 2022. Now I've got the boots and the hard hat in my trunk, because at the drop of a hat, you never know — "Hey, do you want to come check out this building?" Yeah,

47:04because that's part of the job. You love that part of your job — that's the best part. Contractors love to show off their work, let's be honest. Of course — they're doing a good job and they're proud of it, they want to show it off. And who better to show it off to than the guys who are bonding the job? Yeah. You know, I got the chance to see some of these larger developments when the concrete and the structural steel was up and it was amazing to walk through. I mean, but

47:24the faces were beaming — just being able to show that off. Yeah. And you know, the next day we're reviewing financial statements, the next day we're reviewing contract documents. I mean, it literally is — that's what I'm getting at — you guys are really coming at things from a holistic perspective. Absolutely, absolutely. We do it all. We don't just sit there and review a file — that's a lot of what we do, but like Ryan said, the job sites are the best

47:49part of our job. And going to meetings with our clients and our brokers, yeah. And like Andrew said, you're talking to these contractors every day, every week — many of them all the time. They love sharing their business, for the most part, if it's going well. It's not like — if you're a business owner and you have a good relationship with your accountant — well, you have to have a good relationship with your surety brokers.

48:09That's right. And it feels pretty good when you're the first one that your broker or client calls for some advice — or if they want to bid a large project or whatnot, they're asking you what do you think first. It feels pretty good. Yeah. So I can hear some people that are maybe coming out of university, or maybe thinking of going the insurance route, or maybe don't know a lot about bonding and surety. Like Andrew said, if they're tuning in, hopefully we'll

48:33pique their passion and interest in this field, because it sounds like you're definitely — it's not just a task-oriented career. You're always doing something different, and if they're socializing on job sites one day and dealing with financial stuff the next — and that's where we need to do a better job, even getting out in front at job fairs or universities and sharing: "This is a job too." Because none of us probably would have known about this

48:58line of business had we not fallen into it. That's usually what happens. Yeah, yeah. Anything to add, Andrew? I think that's all spot on. Like I said, I think the same challenge we have, construction has, right? You want to get good young talent into the business, and I think we really have those issues in common. I have those conversations with contractors all the time — how are you finding labor, how are you dealing with it, where are you getting it? And a lot of it is still

49:31relationship-based. It's still a challenge and there's still a big labor shortage — getting new people into the business. So it's more talent just moving from shop to shop rather than fresh new talent coming in. And unfortunately, a lot of the associations — I know Nova Scotia is doing it, I know Ontario is doing it — but they're spending a lot of time in trades programs and working with different schools and universities with government to get funding to make sure that

49:59people are getting into the industry. Because it's a phenomenal career, whether you're talking about construction or whether you're doing surety or insurance — they're great careers. Well said, Andrew. I'm just thinking from the perspective of a subcontractor tuning in, or someone who just started a new company whether it's roofing or electrical. This wouldn't apply as much for the generals who are used to dealing with surety and bonding on most of the projects they do — the tenders they're bidding on. But if the contractors want to start bidding

50:25some larger jobs and they're growing their business as a subcontractor in any scope of work, it's basically as simple as reaching out to a broker like Andrew with FCA in Toronto, or someone local in Atlantic Canada, and they'll line you up with the surety company and sort of just take you through the process. Basically that simple — is that correct? It's that simple, yeah. Quite often it's a cup of coffee, it's a lunch — it's nothing for us to get a call saying, "This is what we're

50:51looking to get into — can you give us a few pointers?" Absolutely. And again, a lot of the time — most of the time — the first step was calling the broker. That's been the first step because the broker is going to know where to direct them, they're going to dive into the contract or ask questions, find out everything they can about them, and then they're going to be their biggest advocate: "Let's figure out where a good home is for you."

51:14Right, right. Well, guys, I know there are lots of different things we could drill into. We could talk for days about the financial end of things within surety and bonding. Is there anything we didn't touch on — Andrew, Ryan, or Jen — that you had kind of in the back of your mind, or wanted to either promote for Intact or FCA, or just anything you wanted to mention that didn't come up? I think first and foremost, we do a pretty darn good job of

51:42representing Atlantic Canada, advocating for all the construction associations in each province. We're there to support our contractors, and again, I know I've mentioned it before, but it's all about the relationships for us. It's all about the teamwork, and it's about the communication. To me, those are kind of the three paramount pillars of our business. That's good. I second that. Anything else, Andrew? I just want to thank you, Dan — I appreciate you starting something

52:18like the Atlantic Construction Podcast and really shining a light on top contractors in Atlantic Canada. Personally, I've got a super soft spot for Atlantic Canada because my wife and I, when we were younger, moved out there and obviously lived there for a number of years, and I did surety in the provinces out there. So I've got a super soft spot for it and still spend a lot of time out there with some of our clients at FCA. I just really glad you're doing this and I want

52:44to see you keep doing it and happy to be part of it and happy to support whatever we can going forward. Well, thanks for the kind words, Andrew. That's Andrew Cartwright with FCA in downtown Toronto, videoing in. Here in Halifax we have Ryan Brady and Jen Love from Intact Surety. Thanks so much for doing this, guys, and hopefully it'll be an educational platform people can go back and listen to again if they want to get some information. They can reach out to you guys through your social media

53:12connections and things like that. So it's been great having you guys here, and really appreciate your time. Thank you very much. Thank you very much, it was a pleasure. And Andy, hopefully we have a soft spot for Andy too — everybody does.

53:36All right, Andrew, Ryan, and Jen — thanks so much. Thank you. Thank you. Thanks for tuning in to this episode of the Atlantic Construction Podcast. Be sure to follow us on any podcast platform you use. You can also find us on LinkedIn and Instagram at Atlantic Construction Podcast. Be sure to send us a comment or a review — we'd love to engage with you.