Financial Security Requirements

Financial security requirements are conditions in a solicitation or contract under which a bidder or contractor provides financial protection to Canada against specified risks. Government of Canada guidance identifies three types: offer financial security, contract financial security, and payment bonds. The CanadaBuys financial security guidance sets out how each type works.

Offer financial security protects Canada if an offeror fails to enter into a contract. Contract financial security is intended to ensure that a contractor fulfils its contractual obligations. A payment bond protects subcontractors and material suppliers from non-payment. Federal sources use the terms "financial security" and "financial security requirements" without an abbreviation.

The three types of financial security

Each type answers a different risk at a different stage of the procurement.

• Offer financial security: protects Canada if an offeror does not enter into the resulting contract.
• Contract financial security: helps ensure the contractor performs the work as agreed.
• Payment bonds: protect subcontractors and material suppliers if they are not paid. These include labour and material payment bonds.

CanadaBuys instructs buyers to decide before issuing a solicitation whether offer or contract financial security is required. Buyers then include the appropriate clauses in both the solicitation and the resulting contract, and they identify mandatory requirements clearly.

Forms of security Canada recognizes

The CanadaBuys guidance lists several acceptable forms of financial security: surety bonds, government-guaranteed bonds, bills of exchange, and irrevocable standby letters of credit. Payment bonds are a further form of protection aimed at subcontractors and suppliers.

Public Services and Procurement Canada (PWGSC) standard clauses are more specific about contract financial security. They require the contractor, within the specified period after award, to provide an approved form of security. The listed alternatives are a performance bond, a performance bond together with a labour and material payment bond, a labour and material payment bond, or a security deposit. The full wording is in the Standard Acquisition Clauses and Conditions Manual.

Thresholds and timing in federal procurement

Two dollar thresholds appear in the CanadaBuys financial security guidance. Buyers must not require offer financial security for procurements valued at or below $500,000 CAD. Contract financial security must be sought for construction contracts with an estimated value over $500,000 CAD.

Timing is also set out for construction requirements. Where contract security is required, CanadaBuys states that it must be received within 14 days after contract award and before offer security lapses. See the elements to consider at award for the buyer-side guidance.

Treasury Board rules and contract administration

The Treasury Board Directive on the Management of Procurement requires contracting authorities to consider financial security in proportion to the risks involved, including the possibility that a contractor may fail or be unable to perform. It also requires the security provider to be licensed in the jurisdiction of the eventual contract. The text is published in the directive document.

Financial security is separate from security requirements for protected or classified information, personnel screening, or facility safeguarding. Those are documented through a Security Requirements Check List, described in the CanadaBuys SRCL guidance.

After the contract, CanadaBuys provides procedures for returning security deposits and handling the expiry or destruction of surety bonds once contractual obligations have been discharged.

What it means for a supplier

Read the solicitation to see whether offer financial security, contract financial security, or both are required, and which forms are accepted. Confirm the deadline for delivering security after award, particularly on construction work. Check that your surety or other security provider is licensed in the jurisdiction of the contract. Keep financial security separate from any security clearance obligations, since the two are handled under different documents and processes.