FAQ.34

Question:

Can or should Architects or Licensed Technologists OAA obtain bonds? Occasionally, clients ask that architects and other consultants submit a bid or performance bond with their RFP response, or as part of a fee proposal.

Short Answer:

No. There is a difference between the law that governs the provision of construction, and that which governs the provision of professional services. OAA members are not construction contractors. The request is problematic because such bonds are not available to architects.

Expanded Answer:

The reason OAA members cannot obtain bonds has nothing to do with a lack of integrity or capacity on the part of architects, but rather with a fundamental premise of the surety industry in Canada: bonds are not insurance.

At one point in the development of the Construction Act of Ontario, the draft legislation required both contractors and consultants on government projects over a certain value to be bonded. The surety industry spokesman at a review meeting objected to any requirement to bond consultants. After listening to the reasoning, the bonding of consultants was dropped from the Construction Act.

The reasoning, as stated during the meeting to review and comment on the draft legislation, was that bonds are not a form of insurance. With insurance, the insured person pays a premium, and if at some point, they make a valid claim against the insurance policy, the insurer pays to settle the claim. End of story.

With bonds, the bonded person/company pays a premium, and if at some point a valid claim is made, the bonding company steps in and uses its resources to make good on the bond. The bonding company then looks to the assets of the person/company they bonded in order to recover the money they spent in making good on the bond. This may include going after cash or physical assets of the person/company that was bonded.

Contractors typically have assets that the bonding company can convert into cash. Examples would include: a depot, site trailers, heavy equipment (dozers, fork lifts, trucks), scaffolding, etc. On the other hand, consultants rarely have such valuable tangible assets.

Many OAA members may only have used computers, licensed software, and some office furniture—none of which are likely to be converted into enough cash to enable a surety to recover what it has expended. For sureties, issuing bonds to consultants would have been a money-losing proposition.

The value in an architectural practice is often in the reputation, and client relationships it has established (i.e. goodwill). These assets, as valuable as they are, do not readily convert to cash.