Financial Security

In Canadian federal procurement, financial security is a financial instrument that an offeror or contractor provides to protect the Crown against specified financial risks. Depending on the requirement, it secures the offer, helps ensure the contract is performed, or protects subcontractors and material suppliers.

The term is used in Government of Canada procurement guidance and in standard acquisition clauses. It is not the same as a security requirement, which concerns classified information or personnel security screening. Financial security is about money and risk to the Crown, not clearances. Federal contracting authorities, including those running procurements administered through Public Services and Procurement Canada (PSPC) and the CanadaBuys system, use it.

The three types of financial security on CanadaBuys

CanadaBuys identifies three types of financial security in its buyer's guide.

• Offer financial security protects Canada if an offeror fails to enter into a contract after its offer is accepted.
• Contract financial security helps ensure that a contractor fulfils its contractual obligations.
• Payment bonds protect subcontractors and material suppliers.

Each type answers a different risk at a different point in the procurement. Offer security applies between bid submission and contract award. Contract security applies while the work is carried out. Payment bonds look downstream, to the firms that supply labour and materials to the contractor.

Instruments accepted as financial security

Federal guidance and CanadaBuys list several forms of financial security. Common instruments include:

• security deposits
• government-guaranteed bonds
• bills of exchange
• irrevocable standby letters of credit
• surety bonds

The Treasury Board guidance also limits who can provide this security. Only insurance companies licensed by a Canadian federal, provincial or territorial regulator to provide financial security in the relevant jurisdiction may provide it for federal Crown procurement contracts.

How financial security sequences through a bid and contract

The CanadaBuys standard acquisition clauses provide for combinations of instruments across the life of a procurement. A bid bond or security deposit can be required with the bid. After contract award, a performance bond can be required and, where applicable, a payment bond.

The buyer makes the decision to require financial security before a competitive solicitation is issued. The solicitation and the resulting contract must then contain the applicable clauses. A supplier cannot negotiate the requirement into or out of a tender after the fact. It is fixed in the documents that bidders receive.

What financial security means for a supplier

A supplier must provide the specified instrument in the required amount, in the required form and by the stated deadline. Check each of these against the solicitation before you commit to bid.

• Confirm which type of financial security the solicitation requires: offer, contract, payment bond or a combination.
• Confirm that your instrument is one of the accepted forms and that the issuer is licensed as federal guidance requires.
• For a letter of credit, set the expiry date beyond the relevant risk period. For offer security, that means beyond the expected award date. For contract security, it means beyond expected contract completion.
• Arrange bonds or letters of credit with your surety or financial institution early, so the instrument is ready when the bid closes or the contract is awarded.

A bid that does not meet the financial security terms in the solicitation puts the offer at risk, so bid teams should treat the requirement as a compliance item alongside technical and pricing requirements.