A Surety Bond is a financial guarantee that contractual obligations will be met. It’s a three-party agreement between the Principal (the individual or business who will perform the obligation), the Obligee (the entity requiring the bond to guarantee the principal's performance), and the Surety (Issuer of the bond that upholds the obligation on behalf of the principal). Today, “e-bonds (digital bonds)” are increasingly replacing “paper bonds” as procurement systems become automated. The essence of digital bonds (e-bonds) lies in their embedded security features.
These protocols provide owners with confidence that the bond is genuine, officially issued and signed by the authorized party, and hasn't been altered. This is a key distinction from simple scanned documents.
To fully grasp the advantages of digital bonds in bidding and contracting, it's crucial to differentiate between true digital bonds and mere scanned copies of physical bonds. Some tender processes allow or require bid bonds to be manually created, scanned, and submitted as PDF files. While these are sometimes mistakenly called "electronic" bonds, they're actually just pictures of physical documents.
Scanned PDFs, while convenient and technically "electronic," aren't digital or created using specialized e-bonding systems and can't be easily integrated into online tendering platforms. More importantly, they don't meet the security standards set by the “Surety Association of Canada (SAC)”.
The main issue with scanned PDFs is the difficulty in verifying their authenticity without directly contacting the issuer. There's no way to confirm if the received scanned/PDF document is the original, unaltered version. Moreover, you can’t distinguish the fact that in the received PDF file, the person who signed the bond was “Duly Authorized” to do so. In extreme cases, this lack of verifiability could lead to legal disputes over the document's authenticity (verification) and the people who signed it (authentication).
True digital bonds, on the other hand, offer built-in “Verification” and “Authentication” features, making them more secure and reliable for all parties involved in the bidding process.
Regardless of the bond type, the Supreme Court of Canada in the 2000 decision; Friedmann Equity Developments Inc. v. Final Note Ltd. ruled that “At common law, a sealed instrument, such as a deed or a specialty, must be signed, sealed and delivered”. Scott & Reynolds on Surety Bonds (Carswell Press; 2010) defined the bond as a deed and said “At common law, in order to be valid and effective, a bond, being a deed, had to be signed, sealed and delivered”.
According to the Surety Association of Canada (SAC), “The exception to this general rule is found in the Province of Quebec where the Civil Code, CQLR c CCQ‐1991 does not make the common law distinction between a deed and a contract for the purposes of a sealing requirement. In fact, in Article 138, the Code states explicitly that seals are not necessary to establish the validity of the contract”.
The Surety Association of Canada (SAC) in its Position Paper 021 (PP021 – Bonds in a Digital) stated that a Digital e-Bond must meet the following 3 criteria:
1) Integrity of Content - The assurance that the document received is the true document executed and the content has not been changed or altered.
2) Secure Access - Restricting the access to the document to those unauthorized to view and/or download it.
3) Verifiability / Enforceability - Assurance that the document was properly executed by the parties identified and it holds legal validity, making it enforceable by the applicable laws.
Therefore, if bonds are expected to be signed and sealed instruments, cutting-edge e-bonding platforms must provide a legally binding electronic process that is compliant with the above requirements. In addition, they must offer a comprehensive suite of capabilities including digitally signing and sealing documents, content security and digitalization, distribution to all recipients, workflow process, document verifications, document authentication, and more.