Here’s a quick guide on how to get bonded for a construction job. Learn everything you need to know, and apply for the bonds you need today with Contractor Surety Group.
Why are Bonds Required for Construction Jobs?
When a government agency or private company signs an agreement with a construction contractor, they are exposing themselves and the taxpayers or investors funding the project to significant risks. For example:
- A contractor could become insolvent and default on the contract.
- Suppliers who are not paid by a contractor could stop shipping, bringing work to a halt.
- Workers who are not paid on schedule could stop showing up.
- An unethical contractor could deliberately cut corners and compromise construction quality.
- The project owner could be sued and liens could be placed on the property.
Any number of unethical or unlawful actions on the part of a construction contractor can cause a financial loss for the project owner and other stakeholders. By requiring contractors to purchase certain types of surety bonds, public and private project owners protect themselves and the public against such potential losses.
Common Construction Surety Bonds
The most commonly required contractor bonds are bid bonds, performance bonds, and payment bonds, each of which provides protection against specific risks.
- Bid bonds provide protection for project owners in the event that a bidder turns down a contract after it has been awarded to that contractor. They typically cover the cost of re-advertising the job, reviewing new bids and proposals, vetting high-ranking bidders, and so on. Learn more.
- Performance bonds provide funds to cover the cost of redoing unsatisfactory work or completing a project left unfinished by the original contractor. Learn more.
- Payment bonds ensure that subcontractors, construction workers, and suppliers will be paid when a contractor fails to pay them. They are usually issued in conjunction with a performance bond. Learn more.
Who Needs Them?
The Miller Act is federal legislation that requires prime contractors on federal construction projects valued in excess of $100,000 to obtain both a performance bond and a payment bond. If you are awarded a contract for a federal public works project, you’ll need to purchase these bonds, and you may have already had to purchase a bid bond in order to submit your winning bid.
All states have their own versions of the Miller Act, commonly referred to as “Little Miller Acts,” though they have their own official titles. While the details differ from state to state, they typically require a performance bond and a payment bond for any state public works project valued in excess of $50,000.
Contractors working on large private projects may also need to purchase specific contractor bonds to protect the project owner and investors in the project.
How Do They Work?
If you violate any of the terms of a contractor bond, a party who has suffered a financial loss as a result of your actions can file a claim against the bond. The surety will make sure it’s valid and will likely pay it on your behalf to give you time to gather the funds to cover the claim. You must then reimburse the surety company in full, because as the “principal” in the surety bond agreement, you are solely responsible for paying claims.
What do They Cost?
The annual premium for a contractor bond is a small percentage of the required bond amount. The required bond amount is established by the project owner, known as the “obligee” in the surety bond contract. The premium rate you will pay, however, is determined by the surety company that underwrites and issues the bond.
The primary factor the surety company relies on in setting your premium rate is your personal credit score. With good credit, you’ll likely pay a premium rate between 1% and 3% of the required bond amount.
Get Bonded Today
If you’re looking for a reliable surety company to provide the bonds you will need for your construction business, contact Contractor Surety Group today. Our vast experience in construction bonding makes us a great choice to meet your bonding needs.