Performance Bonds & Payment Bonds
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- What do performance and payment bonds cost?
Rates are based on a percentage of the total contract amount, not just the bonded portion of the contract (if it varies). You can try our estimate tool to get an idea of costs. You need to apply on our website to get an exact price for contract bonding. View our video "What do bid and performance bonds cost?" for more information.
- I have bad credit. Can I get a payment and performance bond?
In most cases, no. Smaller contractors are based solely on personal credit and there is no high risk performance & payment bond market. Larger contractors with strong CPA business financials and appropriate experience can get approved should the owners have credit issues.
- When do I need payment and performance bonds?
After you are awarded a contract with payment & performance bond requirements. If the contract required a bid bond, a payment & performance surety bond will usually be required after. Watch our video to learn more about how performance and payment bonds work.
- My business is new. Can I get bonded?
Yes. However, you will be limited to smaller bonds and you must have adequate personal credit. Apply to determine if your new business qualifies for contract bonds.
- Why do you need my spouse's information?
Your assets were joined upon marriage. With surety bonding, you are corporately and personally responsible for repayment of bond claims. Therefore, the surety requires your spouse to personally guarantee your company. In addition, if your spouse is unwilling to provide a personal guarantee, the surety will question why they should.
- What is a bond line?
It is the pre-approved bond limits of the contractor. Bond lines include single and aggregate limits. The single limit refers to the bond limit for one particular job. The aggregate limit is the total amount of bonded work on hand allowable.
- Is a payment & performance bond insurance for me?
No. They insure public funds against contractor default. Should you default, a claim can be made to get a new contractor to finish the job and pay subcontractors, suppliers and laborers. The surety will look to the contractor for reimbursement on any claims paid out. Therefore, a bond is insurance for the government and a form of credit for the contractor.
- Where can I find a payment & performancebond form?
We have industry standard bond forms on file from the AIA which are often used. However, you will need to obtain a form from the obligee if they have specific bond forms with their own language.
- Does it matter which surety company backs my performance and payment bond?
Yes. The obligee will have financial strength (A.M. Best Rating), federal and/or state licensing requirements the bonding company must meet. Using a surety company that doesn't meet the requirements will result in your bonds being rejected by the obligee. In the event of a surety financial strength downgrade, the obligee may request a replacement bond from a new surety at your expense.
- Are payment & performance bonds only for construction projects?
No. There are non-construction and service contracts that may also need bonds such as school bus transportation or janitorial contracts.
- What if I only need a construction payment bond?
That's not a problem. You can apply on our website and get a standalone payment bond approval. The same application and process is used for both standalone payment bonds and combined payment & performance bonds.
- Do I need multiple applications for a payment & performance bond?
No. Only one application is needed when applying for performance and payment bonds.
Still have questions?
What Is A Performance Bond?
A performance bond is a guarantee a contractor will complete a project according to the contract. Performance bonds protect taxpayers' money, as they ensure public works projects will be completed properly and in full, and are required by federal law in accordance with the Miller Act. General contractors can also protect themselves by requiring their subcontractors to guarantee their work with a performance bond that runs to the General Contractor.
Payment bonds, supply bonds and maintenance bonds are usually required along with performance bonds. Payment bonds guarantee payment to all subcontractors and suppliers; supply bonds ensure that materials will be provided according to the contract; and maintenance bonds guarantee a contractor's work will be defect free for a specific time frame after it is complete.
How To Get A Performance Bond
Not everyone can qualify for a contract performance bond, as surety bonds are a form of credit, not insurance. Watch our video to learn about who surety bonds protect.
Underwriting guidelines change depending on the size of the contract. Smaller contracts, around $300K and under, are based strictly on the owners' personal credit. However, underwriting for larger contracts is more extensive, and you can find a detailed explanation below. To get larger performance bonds, an increased bond line is needed, which is the pre-qualified bonding limits of the contractor. Watch our video to learn more about how a bond line works.
How Much Is A Performance Bond?
Sureties will offer lower rates to companies with strong balance sheets, which makes it essential to leave some net profit in the business each year. Doing so adds to a company's equity position allowing for more surety support. Many contractors do not like to show a net profit for tax reasons, but what can be good for taxes can be bad for surety credit. The surety company will want a minimum amount of equity and working capital based on the bond line provided, as it proves vitality and profitability of the company. Check out our video to learn how to get a lower construction bond rate.
How To Qualify For Large Performance Bonds
Hiring a construction CPA is important when trying to qualify for a large contractor performance bond. The business financial statement is the primary item sureties will review when determining a contractor's bond line. If a CPA unfamiliar with construction accounting is used, statements will likely be incorrectly prepared to increase your bond line. It is important to speak openly with your bond agent and CPA about your bond limit goals. Take a look at our video and find out how to increase your construction bonding capacity.
Working with a proficient surety agent is also crucial. Surety bonding is a highly specialized field and the experience of a standard P&C insurance agency may be insufficient for your needs, unless they have dedicated surety experts. Skilled surety agents have direct access to the best markets, which means they can provide the lowest rates and the most support. They also can work directly with a CPA to ensure the contractor up for review is presented properly. Watch our video to learn how to choose the right bond company.
Large performance bonds are fully underwritten, and are based on order of importance, the contractor's business financial statements, experience in the construction industry, banking records, supplier references, the owner's personal credit and financial statements.