- Complete the form and email to [email protected]
- Be sure to include the Contract and Notice of Award letter (bid specs from the obligee).
- Send the bid results if you have them
Performance Bond Cost Calculator for Bonds Under $1,000,000
** Please note that the Performance Bond Calculator is just an estimate. We've gotten clients lower rates through underwriting, etc.
Last Updated: July 10, 2021
How Much Does a Performance Bond Cost?
The cost of a performance bond can vary, but a good rule of thumb is that it costs one to three percent (1-3%) of the contractual amount. The cost of a performance bond may go up by 1.5% to 2% on riskier contracts. The financial strength and credit worthiness of the principal are major considerations in the cost of the bond. For our small contractor bonds (those that are <$400,000) three percent (3%) is a pretty good rule to follow. For larger bonds, we spend a considerable amount of time trying to drive the price down as a percentage of the total job cost. For a $250,000 project a 3% fee would be $7,500.
- The cost of the bond is based on the amount of the contract. Without going through the underwriting process, it is difficult to provide a specific cost for the performance bond unless you have an extensive record that can be used to justify the cost.
- As a good rule of thumb, most preferred contractors get rates between One to Three Percent (1-3%) of the value of the contract with riskier contractors getting additional costs of 1-1.5%
The bond cost will go up (and down) based on the value of the contract.
**Contractor’s Tip: be sure to build in the bond cost into any change orders!
Items that affect the Cost of the Bond
As we stated above, the cost of the bond is based on the amount of the contract. Without going through the underwriting process, it is difficult to provide a specific cost for the performance bond unless you have an extensive record that can be used to justify the cost other than the contract value. The other things to take into consideration are the contractor's financial history, credit score, and financial history and credit score of the owner. If the contractor has poor credit, the bond cost can go up (say, from 3% to 4-5%). The rates can vary depending on the type of job as well, as certain jobs are deemed riskier, which increases the premium.
Who pays for a performance bond?
A performance bond is directly paid for by the contractor. Normally, the performance bond cost is included in the bid price by a contractor. So, it is really the owner of the project (the Obligee) that will pay for the bond (albeit indirectly) as all bidders will include the bond cost in their bid.
Benefits and Drawbacks of a Performance Bond
- They provide assurance to the owner that the project will be completed
- They provide assurance that the work will be done timely
- They make sure that all material vendors are paid
- They ensure that all subcontractors are paid
- No liens!
- There is an additional cost of 1-3%
- Sometimes the surety company will try and deny claims based on the specific terms of the contract
Normal Performance Bond Cost Amount Plus Fees
In some cases additional fees may be charged for a surety bond. These fees can include escrow fees from a surety when they utilize an escrow company, which can be 1-1.5% on top of the bond cost, plus a one-time setup fee of $500-$750. In some cases fees are charged by agencies or brokers in some cases to supplement or replace commissions that are not generated from the bond. Other items, such as overnight mailing fees, credit report charges, etc. may be charged. Don't lose your mind over figuring how to calculate performance bond cost. Also, some people obsess on what is the cost of a performance bond, instead of focusing on the fees, as well as the job margins.
How are Performance Bonds Calculated Where the Penalty Amount is Less than the Contractual Amount?
Sometimes a performance bond is needed when the penalty amount is less than the contractual amount. For example, if the contract is $1,000,000, but the Performance Bond only covers $100,000, how do you calculate the premium? Most sureties (80-90%) will still require the premium to cover the entire contract, or 3% of $1,000,000 or $30,000. However, we do have a couple of markets that charge 7% of the penalty amount, or $7,000 ($100,000 *.07).
Conclusion – Average Cost of a Performance Bond
A good rule of thumb is that the average cost of a performance bond is around three percent (3%) of the job and it's determined by the nature of the project and your financial strength. It's a good idea not to compare your rate to someone else as their situation is likely different. Finally, it's a good idea to build that into your bid when getting a bonded job. Good luck.