Frequently Asked Questions About Bonds
What is Surety?
Surety is the act of a person or corporation making themselves liable for another’s debts, defaults, or obligations, etc…
What is a bid bond?
Bid Bond is issued by the Surety to the owner of the project in lieu of a required cash deposit. The cash deposit (usually 5% of the bid amount) is subject to full or partial forfeiture if you are the low bidder and fails to either execute the contract or provide the required Performance and/or Payment Bonds.
When is a bid bond required?
Nearly all Public Sector and many private jobs require a bid bond or cashiers check at the time the bid is submitted.
What does a bid bond cost?
Most sureties provide bid bonds for free. Some charge an annual Bid Bond Service Undertaking Fee ranging from $150-$300. This fee covers the charges for any and all bid bonds provided within that time period. Others may charge a fee for each Bid Bond processed.
What are Performance and Payment bonds?
A Performance Bond is a non-cancelable commitment issued by the surety to the owner of the project guaranteeing that you will complete the referenced contract within its set terms and conditions. A Payment Bond guarantees that all sub contractors, labormen and material suppliers will be paid leaving the project lien free.
When are Performance and Payment bonds required?
Performance and Payment Bonds (Final Bonds) are usually required on all Public Sector jobs and many Private jobs. Whoever initially requires bid bonds customarily need to be issued final bonds within 10 days of the award date or prior to any contract payment.
What do Performance and Payment bonds cost?
Premiums are changed for each contract. The premium rate for Performance and Payment Bonds varies upon the contract price, type of work, and the Surety Company. The rate can range from less than 1% to over 3% of the total contract price.
Can any contractor get bonded?
The purpose of requiring Surety Bonding is to have the Surety Company thoroughly analyze the capabilities and capacity of you to verify your ability to complete the project in the desired manner. Since the Surety Company is not in the contracting business and therefore has no desire to end up with having to complete the guaranteed work, they are very particular about the contractors they bond. Not every contractor will qualify for every project, but we can find programs for most construction companies.
Are new contractors and those that have some problems excluded from bonding?
No. There are a variety of Surety Companies and Surety Programs available. Many include special arrangements or SBA backing for Emerging Contractors or those with explainable prior difficulties. This is where we become most important. As an experienced Surety Agent we can usually find Surety support for any worthy contractor.
What does it take to get setup with a Surety Company?
Ideally, the Surety Company wants to see three years of CPA prepared business financial statements along with Work in Progress Schedules, Accounts Payable and Accounts Receivable Schedules, Bank References and thoroughly completed questionnaire (often, surety support is established with less). Our job as a Surety Agent is to retrieve this information, verify its completeness, evaluate the provided information and submit it to the Surety Companies that will best match up with your needs and capabilities.
What determines the size of the jobs a Contractors can bond?
The Surety Companies use various underwriting guidelines to ascertain what limits are applicable. Financial strength, prior job history, time in business and type of work are some of the components. We will work with you to present the most favorable illustration for the Surety Company to review.