What is a Performance Bond?
Certain federal, state, local and private owners may require the posting of a Performance Bond. Performance Bonds are put in place to ensure the project is completed per the terms of the contract. If the contractor is unable to complete the project, the bonding company will step in to ensure the contract terms are fulfilled to the obligee. The contractor will be held accountable to the surety for any incurred losses.
What is a Payment Bond?
A Payment Bond is a guarantee from a surety company that is generally issued along with a Performance Bond. Payment Bonds provide a guarantee to the owner of the project (obligee) that certain sub-contractors, suppliers and laborers will be paid if the contractor (principal) fails to do so.
What is a Bid Bond?
When looking to secure a project, owners at times will require the contractor to provide a bid bond when submitting their bid. The Bid Bond states that the contractor’s surety company will provide the required final bonding (performance and or payment bond) if the contractor is awarded the project. Bid Bonds are typically written for a percentage of the total contract price and also can be for a specific dollar amount as required by the owner (obligee).
What is a Maintenance Bond?
Maintenance Bonds are guarantees provided by a surety company for a certain period of time against any workmanship or material defects on the project.
What type of work may require Performance and Payment Surety Bonds?
The following are a few types of construction projects which may require bonding:
- Asbestos
- Concrete
- Demolition
- Drywall
- Excavation
- Electrical
- Fencing
- Flooring
- Framing
- General Contracts
- HVAC
- Landscaping
- Low Voltage Cabling
- Masonry
- Painting
- Paving
- Plumbing
- Renovations
- Roofing
- Service Contracts
- Sprinklers
- Steel Erection
- Street & Roads
- Supply Contracts
- Tree Trimming
- Utilities
- Water & Sewer
- Nearly all specialty trades
How much do Performance and Payment Surety Bonds cost?
Cost varies on a number of factors, including the credit and financial strength of the owners and their business itself. Typical contract rates are normally based on the final contract price instead of the bond amount, as obligees sometimes require less than 100% Performance and Payment Surety Bonds.
What do surety companies look for in providing bonds to contractors?
Surety companies look at three characteristics when underwriting a contractor: Capacity, Capital and Character. Capacity is a review of the contractor’s skill and ability to perform the work that is requiring the bond. Capital is a review of the financial position of the contractor in order to determine if they have the financial resources to undertake the projects. Character is the determination of the contractor that they have sound, moral and ethical values.
How do I get a Performance and Payment Bond?
Pacific Surety will make the process of obtaining a bond as seamless as possible. Our team of surety bond experts will guide you through the process of obtaining the program you need in order to be successful. Once your program is established, we will continue to assess your needs as your business grows.
Initial submission requirements:
- Contractors questionnaire
- Business financials (CPA prepared)
- Personal financials on all owners
- Resume showing prior experience on job size
- WIP (work in progress)
Why Pacific Surety?
Since 1985, Pacific Surety has been solely focused on surety bonds. As a result of this singular focus, we have become one of the nation’s leading surety bond agencies. This allows us to provide the most competitive bond programs to any contractor, regardless of size or type. We also offer surety bonds using credit based programs, where bonds may be obtained using a simple application. Moreover, Pacific Surety is rated A+ by the Better Business Bureau, and we work with only A-rated and T-listed surety companies.