Performance Bond vs Labour & Material Bond: What Ontario Contractors Must Know
A performance bond guarantees the project gets finished. A labour and material payment bond guarantees the people who built it get paid. Ontario contractors need both on every public project over $500,000, and confusing the two is one of the most common — and most expensive — mistakes we see at bid time.
These bonds look similar on paper. They are issued by the same surety, reference the same contract, and often arrive as a matched pair. But they protect different parties, trigger under different circumstances, and follow different claims processes.
Who Each Bond Protects
Performance bonds protect the project owner. If the bonded contractor fails to complete the work — due to insolvency, abandonment, or persistent default — the surety steps in. Depending on the bond terms, the surety may arrange for another contractor to finish the project, provide financing to help the original contractor complete the work, or pay the owner the cost of completion up to the bond amount.
Under Ontario's prescribed Form 32 and the updated CCDC 221 (2024 edition), the performance bond spells out a structured process: the owner issues a formal notice of default, the surety investigates, and then the surety selects from its available options. The 2024 CCDC 221 expanded from a single page to 13 pages specifically to add clarity around timelines and obligations during this process.
Labour and material payment bonds protect subcontractors and suppliers. If the bonded contractor fails to pay for labour or materials supplied to the project, those unpaid parties can claim directly against the bond. The project owner is not involved in payment bond claims — this is strictly about making sure the supply chain gets paid.
The distinction is fundamental: a performance bond is a contract between the surety, the contractor, and the owner. A payment bond is a promise to the subcontractors and suppliers who have no direct contract with the owner at all.
The Standard Bond Forms in Canada
Two sets of bond forms are used across Ontario construction projects, and contractors should understand both.
CCDC forms (private and broader use). The Canadian Construction Documents Committee published updated bond forms in May 2024 — the first revision since 2002. CCDC 221 is the Performance Bond. CCDC 222 is the Labour & Material Payment Bond. These are widely used on private-sector and institutional projects across Canada.
Ontario prescribed forms (public contracts). For public contracts falling under section 85.1 of the Construction Act, contractors must use Ontario's prescribed Form 32 (Performance Bond) and Form 31 (Labour and Material Payment Bond). These forms were developed by the Ministry of the Attorney General in consultation with the Surety Association of Canada and are more detailed than the CCDC equivalents. Form 31 includes four schedules: templates for subcontractor and sub-subcontractor notices of claim, the surety's acknowledgement, and the surety's position on disputed and undisputed amounts.
On a practical level, if you are bidding a municipal road project in Durham Region, you will use Forms 31 and 32. If you are bonding a private commercial build, you will likely see CCDC 221 and 222. Your bond broker should confirm which forms the contract requires.
When Both Bonds Are Mandatory
Ontario's Construction Act, section 85.1, is clear: any contractor entering a public contract of $500,000 or more must provide both a performance bond and a labour and material payment bond. Each must cover at least 50 percent of the contract price, though owners can require higher amounts up to 100 percent.
"Public contract" means the owner is the Crown, a municipality, or a broader public-sector organization. This captures provincial infrastructure projects, municipal builds, school boards, hospitals, and similar publicly funded work. Contracts where the contractor is an architect or engineer are excluded.
On private projects, bonding is not legislated but is increasingly common, particularly on larger commercial developments where the lender wants assurance that subcontractors will not register liens against the property.
How Claims Work: Two Very Different Processes
Performance Bond Claims
A performance bond claim starts when the project owner formally declares the contractor in default. This is not a casual complaint — it must be an explicit written declaration referencing the bond. Three conditions must be met for a valid claim:
- The owner must formally declare the contractor in default in writing.
- The contractor must actually be in default under the contract terms.
- The owner must have fulfilled their own obligations under the contract (including payment of amounts properly owing).
Once the surety receives the notice, it investigates. Under the 2024 CCDC 221, the surety must acknowledge receipt within four business days and provide its position within 20 days. Under Ontario's Form 32, similar structured timelines apply. The surety will review the contract, assess project status, and may bring in independent consultants.
After investigation, the surety typically has three options:
- Complete the work by arranging for a new contractor to finish the project
- Finance the original contractor to resolve the issues and complete the work
- Pay the owner the lesser of the bond amount or the cost to complete, less the remaining contract balance
The surety chooses the option, not the owner. This is an important distinction that surprises many project owners encountering their first performance bond claim.
Labour and Material Payment Bond Claims
Payment bond claims follow a different path entirely. The process under Ontario's Form 31 is prescriptive:
For subcontractors (direct contract with the bonded contractor): File a written notice of claim within 120 calendar days of the date you last supplied labour or materials. The notice must go to the surety, the contractor, and the owner. Include copies of your contract, all invoices, proof of payments received, the exact outstanding amount including HST, and a copy of the bond itself.
Once the surety receives your claim and supporting information, it must deliver its position within 10 business days (or 25 business days from receiving the notice of claim, whichever is later). Any undisputed amounts must be paid within 10 business days of the surety's position.
For sub-subcontractors: The timeline is slightly longer. The surety has 15 business days from receiving information, or 35 business days from the notice of claim, to deliver its position.
Missing the 120-day notice window is one of the most common and costly mistakes in construction payment disputes. If you are a subcontractor and payment is overdue, count your days carefully.
The 2026 Construction Act Amendments
Amendments to Ontario's Construction Act took effect on January 1, 2026, and they include meaningful changes to payment bond protections. Contractors and subcontractors working on contracts entered into on or after that date should be aware of three key changes:
Sub-subcontractors no longer need to preserve or perfect a lien to claim under the payment bond. Under the previous rules, there was ambiguity about whether lower-tier claimants needed to take lien steps before accessing the bond. The amended Form 31 now explicitly confirms that sub-subcontractors can claim directly under the payment bond without lien preservation.
Payment bond disputes can be referred to adjudication. For the first time, disputes between a claimant and the surety regarding payment under a labour and material bond can be submitted to Ontario's construction adjudication process. This gives unpaid subcontractors a faster path to resolution than traditional litigation.
These changes are significant for subcontractors and sub-subcontractors who previously faced uncertainty about their rights under payment bonds on public projects.
What Bonds Actually Cost
Surety bond premiums in Canada are calculated as a rate per $1,000 of contract value. Typical ranges for construction bonds:
- Performance bonds: $7 to $10 per $1,000 of contract value (0.7 to 1.0 percent)
- Labour and material bonds: $3 to $5 per $1,000 of contract value (0.3 to 0.5 percent)
For a $1 million contract with 50 percent bonds, a contractor might pay roughly $3,500 to $5,000 for the performance bond and $1,500 to $2,500 for the payment bond. Maintenance period coverage (typically 24 months) adds another $1.50 to $2.00 per $1,000.
Premiums depend on the contractor's financial strength, project experience, and credit history. Contractors with strong working capital and a clean track record pay rates at the lower end. New contractors or those with weaker financials may see premiums of two to three percent or higher.
One important note: Canadian sureties treat the payment bond as a companion document to the performance bond and generally will not issue one standalone. If you qualify for the performance bond, the payment bond follows.
Practical Guidance for Ontario Contractors
Before you bid: Confirm whether the project requires CCDC or Ontario prescribed bond forms. Check the required coverage percentages — 50 percent is the statutory minimum on public contracts, but many owners require 100 percent. Talk to your bond broker early, because surety approvals can take days or weeks depending on the project size and your bonding history.
Get your documents ready. Sureties need current financial statements (preferably reviewed or audited), a work-in-progress schedule, a list of major subcontractors, and references from past project owners. Having these organized before you need them speeds up every bond application.
If you are a subcontractor: Know which bonds are in place on your project. Request copies of the labour and material payment bond before you start work. If payment becomes an issue, do not wait — the 120-day notice clock starts from your last day of work or last material delivery, and missing it can cost you your claim entirely.
Build your bonding capacity over time. A track record of successfully completed bonded projects, clean financials, and a strong relationship with your surety broker all contribute to higher bonding limits and better rates as your business grows.
Frequently Asked Questions
Can a subcontractor claim under a performance bond? No. The performance bond is strictly between the owner, the contractor, and the surety. Subcontractors and suppliers must claim under the labour and material payment bond.
How long does a subcontractor have to file a payment bond claim? Under Ontario's Form 31, a subcontractor must file a written notice of claim within 120 calendar days of the date they last supplied labour or materials.
Are both bonds mandatory in Ontario? On public contracts of $500,000 or more, yes. Section 85.1 of the Construction Act requires both a performance bond and a payment bond at minimum 50 percent coverage. Private projects may require them by contract.
Can a surety issue a payment bond without a performance bond? Generally, no. Canadian sureties treat the payment bond as a companion document and typically will not issue one standalone.
What changed with the 2026 Construction Act amendments? Sub-subcontractors can now claim under a payment bond without preserving or perfecting a lien. Payment bond disputes can also be referred to adjudication for faster resolution.
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