Why
do I need a bid and performance bond?
Certain entities will
require you to be bonded. The bond is a guarantee to the Obligee and
the project owner, that you the Principle contractor will
complete the project and that you are qualified to do so through
your work experience and financial stability. Bonded work is
generally safe for the contractor, and the project owner because
you are more likely to complete the project due to the financial
and contractual obligations and you will get paid, it goes both
ways. Most bonded projects are more profitable since few
contractors are eligible to be bonded.
Is
a performance bond like insurance?
A performance bond is not like insurance. When you purchase an insurance policy, the insurance company charges rates that have been scientifically calculated for your type of risk and therefore expect losses to occur. An insurance policy is an annual period of coverage and has an annual premium. Performance bonds are meant to insure that you will not fail on the project. If they were designed to do so, the premiums would be as high as the cost of the job itself. When you purchase a bond, the bonding company does not expect you to default. If you default on the project, it is similar to defaulting on a loan. You will be required to reimburse the bonding company for all costs to complete the job if you default. By the way, it is a rare thing that a contractor defaults. Why? Because you are pre-qualified for the bond.
What
is a bid bond, what is a performance /payment bond?
A bid bond is a
document that is provided by the Surety, the bonding company. It
states that you the Principle (bidding contractor) have been
qualified to bid and that your bid because it is bonded gives
certain guarantees to the Obligee. The performance bond comes
automatically once you are awarded the bid and we have a copy of
the contract and notice to proceed. The performance bond will stay
in place until the job is completed and the Obligee releases the
bond.
How
do I know that I can be bonded?
I suggest you start with a phone call to 1-866-321-3744. In a very short time I will size up your situation and determine whether or not you should go forward. Or, you may submit the forms provided in this section of our web site. In short, we will evaluate you in four areas.
In the event that you
do not carry through with your bid, the Obligee will receive 5% of
the contract amount in liquidated damages. This money will come
from the Surety, but, the Surety will come to you for
reimbursement.
The bid bond and performance bond are applied for at the same time. When you request a bid bond we will evaluate your current financial status and and make a determination. If you are successful with the bid, we then automatically issue the performance and payment bonds.
What
will it cost?
This cost is generally
less than 3% of the cost of the total bid. Rates vary depending on
financial strength, number of projects per year and size of
project bid. The amount of the bond will be due and payable prior
to the issuing of the final performance bond, unless we have set up
an account for the customer.
