What is surety bonding?
A process in which surety companies pre-qualify contractors and then assure project owners that these contractors will perform the contract according to the terms and conditions at the contracted price, deliver on schedule, and will pay laborers, subcontractors, and suppliers associated with this project.
What is a bid bond?
A Bid Bond provides financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.
What is a performance bond?
A Performance Bond protects the obligee (owner) from financial loss should the contractor fail to perform the contract in accordance with the terms and conditions of the contract documents. In the case of a subcontract, the subcontract performance bond would protect the general contractor should the subcontractor fail to perform as outlined in their contract documents.
What is a payment bond?
A Payment Bond guarantees that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.
Why do I have to pre-qualified with a surety?
The surety underwriter analyzes the contractor’s financial strength, capacity to perform the work, track record, history of company, trade references, organizational structure and business plan. Pre-qualification process is an in-depth look at the contractor’s business. The surety company must be satisfied that the contractor has the ability to meet all current and future obligations, keep promises, deal fairly and perform obligations as agreed.
Why should I bond my subcontractors?
When prime contractors require bonds from their subcontractors, prime contractors take advantage of the pre-qualification services of a surety company, thus transferring the risks of subcontractors or suppliers failing to meet their obligations. Requiring bonds from subcontractors and suppliers may also improve the prime contractor’s credit standing with his own surety since it reduces the prime’s exposure on a job.
How are the costs of contract bonds determined?
Surety rates vary depending on the type of work, the contract duration, warranty period and financial strength of the contractor. Contract bond costs generally range from 1% to 3% of the contract price for contracts lasting 12 months or less. The premium cost includes the performance and payment bond and one year of maintenance for defective workmanship. In most cases there is no charge for a bid bond.
What happens if I discover an error in my bid?
Immediately contact your surety agent for the proper procedure to get relief from your bid bond. If you have a legitimate clerical, not judgmental, mistake legal precedent has determined that contractors are entitled to relief.
How do I file a claim on a surety bond?
Determine the name of the agency and surety company that executed the Performance and Payment Bond. It is recommended that you contact the agency to discuss your specific claim. The agent should provide you with specific instructions and information required to file your claim. Always follow with a letter to the agent, including all supporting documentation, referencing the bonded project and complaint.
What financial information is needed for a new submission?
For a new submission provide the last three years fiscal year end financial statements for the company*; current personal financial statements on all stockholders/owners; current bank reference letter outlining line of credit (total LOC and what is outstanding, etc); and a completed Contractor’s Questionnaire.
*If a newly formed company, an opening balance sheet for company.