What is a Surety bond?
Obligee: The party (person, corporation, or government agency) to whom a bond is given. The obligee is the party protected by the bond. In construction, this is typically the owner or the general contractor.
Surety: A bond company that guarantees the acts of another person.
Bid Bonds – A bid bond guarantees that the bonding company (“surety”) will provide a performance and payment bond on behalf of the principal once the principal is awarded the contract. A claim can be filed against the surety if they refuse to write the performance bond.
Performance Bond – A performance bond is used once the contract is awarded. A performance bond protects the owner from financial loss in the event that the contractor fails to perform the contract in accordance with its terms and conditions. Most performance bonds include a provision that covers workmanship of the project for one year after completion. A performance bond is typically included with a payment bond.
Payment Bond – A payment bond, sometimes called a labor and material bond, protects certain specified tiers of laborers, subcontractors, and material suppliers against nonpayment by the contractor. Generally, these claimants may seek recovery directly from the surety company under the payment bond.
What does a Surety bond cost?
The cost of a bond depends on the type of bond as well as other factors such as the size of bond and strength of the organization. For contract bonds, the cost is usually between 0.5% and 3% of the contract price.
What does a Bond Company look for?
Bond companies are interested in the Three “C’s” – character, capacity and credit. However, each surety company uses a different formula that values different traits slightly different. These traits include:
- A good track record of completing jobs on schedule and within budget
- Has the experience that matches the requirements of the contract
- Has or can obtain the necessary equipment needed to perform the work
- The surety also wants to make certain the contractor has the financial strength to support the desired work program and has a history of paying subcontractors and suppliers promptly.
- The surety wants to see that the contractor is in good standing with a bank
- Established a line of credit
How do I obtain a Surety bond?
Complete our easy bond application (on the right of the page) or give us a call and we can help you find the right solution. Or call around to local insurance agents and hope that they know what they’re talking about.
What is a Contract Surety bond? FYI: Contract Bonds are also known as Construction Bonds
The Contract Surety Bond, or Contractor Bond, is any form of bond required of a contractor for construction. The only exception is the Contractors license bond, which is considered a non-contract commercial bond.
What is a Bid bond?
A Bid bond provides financial assurance that the bid has been submitted in good faith. By being issued a Bid bond the surety is assuring that the contractor will enter into the contract at the bid price. It also assures that the contractor will be able to acquire the required Performance and Payment bonds.
What is a Payment bond?
A Payment bond assures that the contract will pay the suppliers, laborers, and subcontractors involved in the project.
What is Maintenance bond?
A Maintenance bond guarantees against defective workmanship and materials for a specific period of time.
What is a Subdivision bond?
Subdivision bonds assure the state, city, or township that the principle will finance and construct improvements for the good of the public. Such improvements include, but are not limited to: streets, sidewalks, gutters, drainage systems, and turning lanes.
What is a Commercial bond?
Commercial bonds include License and Permit bonds, Judicial bonds, Probate or Fiduciary bonds, Public Official bonds, Federal bonds (non-contract), and many other miscellaneous bonds. These bonds are required by law to conduct business.
What is a License and Permit bond?
State or local laws require License and Permit bonds to engage in a certain business. Examples include; auto dealers, contractors, securities dealers, employment agencies, liquor, and sales tax.
What is a Judicial and Probate bond?
Judicial and Probate bonds, also known as Fiduciary bonds, secure the performance of fiduciaries duties and their compliance with court orders. Examples include; administrators, executors, guardian, trustees of wills, receivers, and masters.
Examples of Judicial Proceedings, or Court bonds, include; appeals, injunctions, attachment, indemnity to sheriff, and admiralty.
What is a Public Official bond?
Public Official bonds assure the performance of duty of a public official. Examples include; treasurers, sheriffs, judges, clerks, notaries, and tax collectors.
What is a Federal bond (non-contract)?
The federal government requires Federal bonds for Medicaid and Medicare providers, Customs, and immigrants.
What are Miscellaneous Bonds?
As the name implies, Miscellaneous bonds do not fall into the above categories. Examples of these bonds include; a guarantee of employer contributions for union fringe benefits, guarantee of payment for utilities, and worker compensation for self-insurers.
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Bonds $250,000 and under
Bonds $250,000 – $500,000
3 Years of Year End Financial Statements or 3 years of tax returns
Personal Financial Statements – One per each owner
Resume of owner(s)
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Bonds $500,000 – $1,000,000
3 Years of Year End Financial Statements compiled or reviewed by a CPA
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Resume of owner(s)
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3 Years of Year End Financial Statements reviewed or audited by a CPA
Personal Financial Statements -One for each owner
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