What is a Performance Bond?
Requirements for some state and federal construction projects include posting a surety bond. Performance Bonds are put in place to ensure the job is completed to the specifications outlined in the contract. This requirement was set for public work contracts of $100,000 and above by the Miller Act. If the contractor is unable to complete the project, the bonding company will be brought in to make the obligee whole. The contractor will be responsible for reimbursing the surety company on any claim payout. Performance Bonds are job-specific and differ from your state-required Contractor License Surety Bond.
What is a Payment Bond?
Payment Bonds ensure payment to sub-contractors, laborers and suppliers working on a construction job. Most of the time, both Performance Bonds and Payment Bonds are required, with the surety company charging a single premium.
What is a Bid Bond?
When looking to secure a job/project, contractors are often required to provide a bond in order to submit their bid. The Bid Bond states that their surety company will provide final bonding if the contractor is awarded the project. Bid Bonds are typically written for a percentage of the total contract price, but sometimes are for a specific dollar amount. Claims can be brought against the bid bond if the awarded contractor refuses to enter into the contract. The claim amount will be based on the cost difference between the contract price in question and the new contractor bid. Some Bid Bonds call for a full penal sum percentage claim/recovery – not just the difference between the lowest bid and 2nd bidder.
What type of work may have Performance and Payment bonding requirements?
Below are a few types of construction work that may require bonding:
- General Contracts
- Low Voltage Cabling
- Service Contracts
- Steel Erection
- Street & Roads
- Supply Contracts
- Tree Trimming
- Water & Sewer
How much will my Performance and Payment Surety Bond cost?
Bond costs depend on a number of factors, mainly the credit and financial strength of the owners and business itself. As with most surety bonds, stronger accounts warrant a lower premium. The typical contract rate filings are largely based on final contract price, not the bond amount, as sometimes obligees require less than 100% Performance and Payment Bonds. Rates on smaller performance bonds ($400k and below) are 3% annually and can go down to 1% annually on larger contracts.
How do I get a Performance and Payment Surety Bond?
Here at Pacific Surety, we strive to make the bonding process as easy as possible. As a broker, we represent a number of different markets to get you the lowest price. A number of surety companies are now offering “Quick” bond programs. This consists of a simple application and “soft” credit check for approvals up to $400,000 on a single project. Additionally, on bonds $400,000 – $800,000, Single/Aggregate can be approved with some additional information on the contractor including financial statements.
Pacific Surety is also proud to support larger contract requirements ($1 million and above). The information required may vary based on the size of the project needing to be bonded, but most of the time the following items will be needed:
- Completed Application
- Business Financials (CPA Prepared)
- Personal Financials on All Owners
- Resume Showing Prior Experience on Job Size
- WIP (Work in Progress)
Can I get a Performance and Payment Surety Bond with bad credit?
While bonding for contractors with credit or financial issues isn’t always an option, Pacific Surety has access to Small Business Administration Programs that make this possible. There are many factors that will play into an SBA approval, but Pacific Surety is here to help! If you have any specific questions on the process, or if you might qualify, please contact our knowledgeable staff to discuss further.