Crawling with Construction Bonds Before You Run

If you are a contractor with a new business, find out why it's important to start with bidding on smaller construction jobs before you work your way up to getting surety bonds for larger projects.


Build Strong Foundations with Smaller Construction Bonds

When you get construction bonds such as bid and performance bonds for a public job, you are responsible for the project's completion. If you don't complete the job according to the contract, a claim can be filed on your bond which you're ultimately responsible to pay. After all, the bonds are guarantees from a surety company that you will complete the job properly, which is why you should avoid getting in over your head by bidding on larger projects that you're not yet qualified to work on.

If you are a contractor with a new business, the surety company will likely limit you to bonds for only smaller contracts (about $350K and under). The bond limit is for your own protection since your company doesn't have a proven track record of an ability to complete larger projects. Also, you don't have to obtain CPA prepared financials for smaller jobs, which often cost thousands to have prepared and can be tough for a new business. Start with smaller jobs to gain the proper experience and allow yourself to get familiar with the entire process, from bidding on jobs to completing projects, while developing a strong relationship with the surety company.

How Construction Bonds Work

Strengthen Your Experience and Surety Relationship, Get Bigger Bonds

Once you have the proper experience, a track record of completed projects under your belt and have built up your relationship with the surety company, you can start bidding on larger projects (about $350K+). Your relationship with the surety company is important because when they provide you bonds for public construction jobs, they are extending a form of credit to you. As mentioned above, the bonds guarantee you'll complete the project according to the contract. If you default or perform faulty work and cause claims, the surety company will pay them at first. However, they will come back for you for reimbursement. Building a strong relationship with the surety company is vital to both your company's and the surety's success. Make sure you read our tips on how to increase your construction bond limits.

Working on bigger jobs usually increases your company's overall profit, which makes getting the CPA prepared business financials that are required for larger bonds less of an issue as it often is for smaller or new contractors. Find out what your CPA needs to provide for your performance bonds.


Author:

Eric is an industry expert that specializes in taking complex surety concepts and explaining them in terms that make sense to the general public. He also manages the JW Surety Bonds website and works with various partners to help further educate the public on suretyship using various mediums.




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