What you need to know about Performance Bond
Are you looking for the best rate on a performance bond for a project you have bid on? Performance bonds are a way of guaranteeing a contractor will complete the project you have invested in. Did you know a contractor is required to obtain a performance bond? The contractor that has won the bid to conduct the work on a project is required to provide a performance bond before the work can begin. Without it, a developer can make a claim to keep from losing any money. These bonds are issued with payment bonds and are a common construction bond. Generally, these are surety bonds that are issued by an insurance company or a bank.
What does a performance bond do?
This type of surety bond will guarantee the investor that the construction will be completed by the company who has the successful bid. If the contractor does not complete the construction according to the contract, the investor is guaranteed compensation for any money lost due to that breach of contract up to the amount of the bid bond. What does this mean for you? It means the bond must be obtained in the amount of the bid, plus an interest rate that you pay as a contractor.
What are the rates for a performance bond?
The rate will depend on:
– The projects’ bid amount
– Your financial credentials
– Past work history
Generally, if you have a good history between your credit and your work history, you can get a rate as little as two and a half to three percent of the bond amount, which is not much at all. For example, if you are contracted for a one hundred thousand dollar project, the rate for your performance bond will be between twenty five hundred to three thousand dollars. This is merely the cost of doing business.
Is a performance bond required by law?
Generally, yes. Depending on your state, the law on public construction projects requires that the contractor obtain a surety bond, with civil fines and other penalties if the contractor fails to do so. Did you know most of the governmental constructions projects are completed by private firms? This is generally believed to be why the legal requirement for these bid bonds exists. They give the government a form of protection to ensure the work gets done.
Previously, the government had issues with private firms that were insolvent, or became insolvent during the construction process before the project was finished and could no longer work. There were many unfinished projects due to this problem, and it forced additional costs onto taxpayers. From this came the rise of the surety bond to guarantee the projects would be completed. At the federal level, the Miller Act requires performance and payment bonds on all federal construction projects. State and local governments may require a bid bond as well.
How do I know what the requirements are for my state?
If you are concerned about what the bonding requirements are where you are conducting business, you can visit http://usabonds.us. There, they have up to date and accurate information concerning all fifty states and Washington DC so that you are prepared.
What do you need to apply for your performance bond?
Applying is easy. Once you have been awarded the contract, whether through a private insurer or through a government entity, you simply need to go to your insurance company or bank that provides these types of bonds. For example, Top surety can provide you will all of the bond you need to complete your project, anywhere in the country. Their application process is simple. All that is required for a project granted for two hundred and fifty thousand or less is:
– The amount of your bid
– The bid date
– Whether you have been bonded for previous projects
– How long your company has existed
– Your personal credit score
It is simple to get a quote and talk with a qualified representative to make sure you get exactly what you need to begin work on your project. If your project is worth more than two hundred fifty thousand, then there will be a requirement for more financial information with your application. At Top surety, they will review your information and quickly get you your bond.