FREQUENTLY ASKED QUESTIONS
How long does it take to get a bond?
This really depends on what type of bond you need. While a license bond can be issued within minutes of receiving a certificate of insurance, a performance and payment bond for a new account could take up to a couple of weeks. It is also dependent upon the thoroughness of the original submission to our office. The more complete the paperwork, the faster we can analyze it and get it to the surety company. Each case is different. We have put been able to secure first time bonds within 24 hours and some have taken weeks. Please give us a call to discuss this further.
For established accounts with current underwriting information, we can usually obtain approval and have the bond issued within 24 hours.
Can any contractor be bonded?
No. The reason an owner requires a surety bond is to make sure that they are dealing with a reputable contractor who will complete the contract. In requiring a bond, the owner can be confident that the surety has analyzed the contractor’s history and qualifications to verify their ability to fulfill the contract. Since the surety company is basically ‘co-signing’ the contract, they are very particular about the contractors they bond. However, while you may not be bondable today, we will work with you to make your company bondable in the future.
Are new contractors automatically excluded
from bonding?
No. The surety companies generally look at the big picture and take into consideration the experience of the key personnel. There are a number of surety companies and surety programs available to new and emerging contractors. The government has designed opportunities for contractors using bond guarantees and/or SBA backing. Some surety companies have also put together their own programs for bonds on contracts under $100,000. These bonds are approved based solely on the personal credit of the owner(s) of the company.
How does the surety determine a contractor’s
single job limit?
There are many factors that the surety considers when determining a single job limit. As a general rule, the single job limit is 1.5 times the largest job that has been successfully completed. The surety may at times extend surety credit for larger jobs but will want to take a look at the nature of the job in question including its duration, difficulty and breakdown of the labor and materials involved.
What can a contractor do to increase
their overall bond capacity?
First and foremost, you need to deal with an experienced and knowledgeable bond agent who understands the surety industry and represents a wide range of markets. In addition, a CPA who understands construction and has a good reputation among surety companies is essential. It is vital that your financial presentation be accurate because it is critical to the surety’s analysis of your company.
Can a contractor get out of a bid after
the bid opening?
If the contractor can show evidence that a mistake was made in their bid, the owner will generally let the contractor out of their bid without penalty. The mistake must be of a mathematical or clerical nature (rather than a judgmental error) and needs to be of a magnitude that could cause irreparable and serious harm to the bidder. However, the contractor is usually excluded from any re-bid of the project if the owner opts to accept new bids rather than award the contract to the next responsible bidder.
What factors determine the premium rate
a contractor is charged?
Rate is primarily determined by the type of construction (roads, building construction, maintenance, etc.) that the contractor performs. Although each surety company files its own rates, they generally have sliding scales where the premium rate is calculated in tiers based on the contract price. Some of the surety companies offer preferred or discounted rates to contractors who qualify. In order to qualify for the preferred rates a contractor must have financial strength, be a frequent user of bonds and have a favorable track record.
Can bond premium be financed?
No. We do not finance bond premium.
Why are general contractors sometimes
required to bond their subcontractors?
A surety company sometimes recommends that a general contractor bond their subs as a way of reducing the risk that comes from a subcontractor who may not be able to perform or cannot pay his subs or suppliers. For very large and/or technically complicated projects, the surety may not just recommend bonding the subs, but may make it a requirement. The surety may also require the general to bond a subcontractor when there could be serious consequences in terms of job delay or difficulty in replacing that sub without a major financial hit should a problem arise on the job. Many general contractors issue joint checks to their subs and suppliers to manage this risk, but a bond provides another level of comfort to both the general and the surety company.
Are there added risks in performing
private work?
The largest risk in performing private work is that the owner may not be able to pay the contractor. Before signing a contract for private work, the contractor should verify that financing for the project is in place. While an AIA contract is generally considered to be fair to both owner and contractor, there are many non-standard contracts that have onerous wording for the contractor. The contractor should carefully review the contract prior to committing to its terms.
Why does the surety company require
the personal indemnity of all owners and their spouses?
The personal endorsement of the owners and their spouses tells the surety company that the principals, who stand to profit most from the bonded project, are comfortable and confident in their ability to complete the contract. This also provides assurance to the surety that the information provided to secure the bond is accurate and that the owners are willing to put their personal wealth behind their statements to the surety. Sometimes personal guarantees are required to tie in personal assets that may be necessary to help the company complete or finance a contract. However, the surety company usually just wants to make sure that the owners are available and will cooperate with the surety toward a successful resolution if and when problems arise.
What happens if there is a claim against
a bond?
If there is a problem on a job that may cause a claim under a bond, it is important to notify the surety as soon as possible. Copies of all correspondence should be sent to your bond agent along with a reply to the claimant’s letter of demand. In most cases, the problem can be remedied without active involvement of the surety. However, if a claim is filed against the bond, the surety must respond to the claimant within a certain time frame and must conduct an investigation into the matter. A claim representative from the surety will contact the contractor to get a defense and ask for cooperation in resolving the situation. It is extremely important that the contractor cooperate with the surety to bring a quick resolution to the claim in order to avoid a suit being filed.