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FAQ  Bonding Questions and Answers

What is Surety?
Surety is the act of a person or corporation making themselves liable for another's debts, defaults or obligations, etc...

What does Bondable mean?

Bondable means that the Contractor's capital, character & capacity have been analyzed by a Surety Underwriter. The Surety Underwriter has then determined that the Contractor can perform certain types of work within established parameters. Based upon that determination, the Surety Company will issue Surety Bonds guaranteeing the Contractors performance and/or payments within the resolved guidelines.

What is a Bid Bond?

A Bid Bond is issued by the Surety to the owner of the project in lieu of a required cash deposit. The cash deposit (usually 10% of the bid amount) is subject to full or partial forfeiture if the contractor is the low bidder and fails to either execute the contract or provide the required Performance and/or Payment Bonds.

When is a Bid Bond Required?

Nearly all Public Sector jobs and many private ones require the posting of a bid bond or cashiers check at the time your bid is submitted.

When is a Performance / Payment Bond Required?

Performance/Payment Bonds (Final Bonds) are usually required on all Public Sector jobs and many Private ones. The low bidder is generally required to file the final bonds and provide an insurance certificate when the contract is signed with the owner and prior to the start of work.
What does a Bid Bond Cost?
The Surety Company normally charges an annual Bid Bond Service Undertaking Fee ranging from $150-$250. This fee covers the charges for any and all bid bonds provided within that time period.
What is a Performance / Payment Bond?

Performance and Payment Bonds are non-cancelable commitments issued by the surety to the owner of the project (obligee). The Performance Bond guarantees that the Contractor will complete the referenced contract within its set terms and conditions. The Payment Bond guarantees that all sub contractors, laborers, and material suppliers will be paid leaving the project lien free.

What does a Performance / Payment Bond cost?

The premium rate for Performance/Payment Bonds varies upon the contract price, type of work, strength of the Contractor and the Surety Company. The rate can range from less than 1% to over 4% of the total contract price. The Payment Bond is added at no additional charge. A Payment Only Bond is rarely requested and is billed usually at about 50% of the regular premium.
Can any Contractor get Bonded?

No. The purpose of requiring Surety Bonding is to have the Surety Company thoroughly analyze the capabilities and capacity of the Contractor to verify their ability to complete the project in the desired manner. Since the Surety Company is not in the contracting business and therefore has no desire to end up with having to complete the guaranteed work, they are very particular about the Contractors they bond.

Will the new Contractor and those that have had some problems be excluded from Bonding?
Again no. As previously discussed, there are a variety of Surety Companies and Surety Programs available. Many include special arrangements or SBA backing for Emerging Contractors or those with explainable prior difficulties. This is where your agent becomes most important. The experienced Surety Agent can usually find some Surety support for any worthy contractor.
What does it take to get setup with a Surety Company?
This would depend on the size of the bonds you are trying to obtain.
For smaller projects, good personal credit can get you approved for bonds for up to a $200,000.00 project

For larger projects, the Surety Company wants to see two to three years of CPA compiled or reviewed business financial statements along with Work in Progress Schedules, Aged Accounts Receivable and Payable Schedules, Personal Financial statements of each owner of the company, Bank References, and completed Contractor's questionnaire (often, surety support is established with less). The Surety Agent's job is to retrieve this information from the contractor, verify its completeness, evaluate the provided information and submit it to the Surety Company that will best match up with the contractor's needs and capabilities.
What determines the size of the jobs a Contractor can bond?

The Surety Companies use various underwriting guidelines to ascertain what Surety limits are applicable. Financial strength, prior job history, time in business and type of work are some of the components. The Surety Agent usually works with the Contractor to present the most favorable illustration for the Surety Company to review.