Contractor surety bonds are a part of doing business in the construction industry, and in many instances are often required. Surety bonds are not only a necessary part of your business, they also demonstrate to your customers that you have a track record of professionalism. If you’re shopping for a contractor surety bond, look no further. We can help you get the bond you need quickly and affordably.
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Surety Bonds for Contractors
If you’ve been a contractor or construction professional for some time, you likely are familiar with the types of bonds used in your industry. Surety bonds are three-party contracts which guarantee correct performance of an obligation. But if you are looking for more information, here’s what you need to know about surety bonds for contractors.
Contractor License Bonds
A contractor license bond is required by many states to maintain an issuance of an active license, reactivation of a license, and for the maintenance of an actively renewed license. License bonds are designed to protect consumers from damages resulting from license law violations such as defective construction.
Contractor Bid Bonds
A contractor bid bond ensures contractors make serious bid proposals. If your bid is selected and you then refuse to undertake the project, the bid bond assures that the developer will be paid the difference between the lowest bid and next lowest bid. Bid bonds are designed to protect project owners from bidders who may not have the financial means to accept the job for the price quoted on a bid.
Contractor Performance Bond
A contractor performance bond guarantees satisfactory completion of a project by a contractor. A performance bond guarantees the faithful performance of the contract and payment (payment bond) of materials and labor by the contractor to all subcontractors and material suppliers. If the contractor fails to complete a project according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss. The performance & payment bonds are typically issued together, as they are so closely related.
Contractor Payment Bond
A contractor payment bond guarantees payment to laborers, suppliers, and subcontractors in the event of the contractor defaulting. Payment bonds are not only beneficial to the parties needing payment, but also to project owners who don’t have to worry about liens being placed on the property when construction is completed. Typically, a payment bond is issued with the performance bond, termed a “performance & payment bond”.
How Do Surety Bonds Differ from Insurance?
With insurance, the insurance company indemnifies the insured against loss. As an example, if the insured incurs a loss by fire, and has purchased the appropriate insurance, the insurance company will reimburse the insured for their loss up to the insurance policy limit.
With a bond, the insurance company (Surety) will reimburse a third party (Obligee) for the loss caused to them by the Principal. In the event the Surety is required to pay the Obligee on behalf of the Principal, the Principal is required to reimburse the Surety. A Surety is essentially extending credit to the Principal. The Surety is not insuring the Principal against loss.
How Much Does a Surety Bond Cost?
Surety bond premiums vary from one surety to another but can range from 0.5% - 2% of the contract amount, depending on the size, type, and duration of the project and the contractor. In many cases, performance bonds incorporate payment bonds and maintenance bonds. When bonds are specified in the contract documents, it is the contractor’s responsibility to obtain the bonds. The contractor generally includes the bond premium amount in the bid and the premium generally is payable upon execution of the bond. If the contract amount changes, the premium will be adjusted for the change in contract price. Payment and performance bonds typically are priced based on the value of the contract being bonded, not necessarily on the size of the bond. Commercial bonding has a greater range of pricing; high risk programs have a high premium and 10% collateral.
Get Contractor Surety Bonds Today
We specialize in contractor surety bonds such as license bonds, bid bonds, performance and payment bonds. If you need a bond quickly and at a price you can afford, we can help. Call us today at (800) 579-6369 or complete the form below for a free bond quote.