What is a surety bond?

A surety bond is a signed agreement that guarantees compliance, payment, or job performance. Sureties are a type of insurance with a three-party contract in which one party (the surety) guarantees the performance of a second party (the principal) to a third party (the obligee). Surety bonds written for construction projects are called ‘contract surety bonds;’ otherwise, they’re known as commercial surety bonds.

Who is the surety?

A surety is an insurance company or surety company licensed by a state department of insurance that guarantees the performance of a principal. If the principal fails to act as promised, then the surety is liable for losses sustained.  

Who is the principal?

The principal is the person or entity who purchased the bond. In construction, the bond is given to the contractor or subcontractor who undertakes the obligation to perform the job as promised. The surety guarantees the principal’s responsibility.

Who is the obligee?

The obligee is the individual or entity with whom the principal is contracted. In construction, the obligee is the project owner or the primary contractor. Often the obligee is a local, state, or federal government organization.

What documents will I need to get bonded?

• Completion of a Contractors Questionnaire
• Fiscal Year End Business Financial Statement for the Contractor and all subsidiaries and affiliates for the last two years
• Current personal financial statement for all owner(s)
• Current work on hand schedule
• Current bank reference letter
• Resume of all key employees
• The current insurance certificate naming Construction Bonding Specialists, LLC as a certificate holder

For Bid, Performance, or Payment Bonds – the following items are also required:

• Contract Bond Request form: Contract Surety
• A copy of the underlying contract and bond forms for our review

What factors does a surety consider in the underwriting and prequalification process?

Obtaining a construction bond is more like getting bank credit than purchasing insurance. Surety underwriters perform a thorough and detailed process to review and evaluate the financial documents submitted. They also consider factors such as the risk under the specific contract for which the contractor seeks a bond, the contractor’s entire work portfolio, past performance, experience, operational efficiency, managerial skills, business plan, and reputation for integrity. Different sureties will weigh varying factors during the underwriting process, but almost all will consider the following factors:

• Financial capacity
• Net worth
• Cash flow
• Assets
• Credit score
• Work in progress
• Work history, including expertise and experience
• The banking relationship
• The nature of project to be bonded
• The character of the contractor

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For more information about our bonds visit our website or call 248-349-6227

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

Experienced contractors generally make a conscious effort to avoid claims situations, while being proactive about understanding the process. Utilizing the perfect surety gives those contractors the knowledge and power they need for their claims team. For any contractor to take on bonded jobs, basic comprehension is essential.  

The three main types of construction bonds are: bid bonds, payment bonds, and performance bonds.

Bid Bonds
These bonds stem from situations when the principal is the successful bidder but cannot enter into the contract or provide final bonds. In bid bonds, the principal and surety are required to pay a specific sum to the obligee. The bond form caps liability at a particular amount (the difference between the principal’s bid and the next highest bidder’s bid) instead of exceeding the penal sum of the bid bond. The responsibility of this task is between the principal and surety. 

Payment Bonds
When the principal fails to pay subcontractors, laborers, and/or suppliers, payment bonds give the surety the right to assert all of the principal and surety’s defenses, which sometimes include limitations on notice and time. Only proper “claimants” can benefit from these bonds, so the principal and surety need to confirm the claimant can pursue the claim. 

Performance Bonds
A performance bond claim arises when the obligee defaults or terminates the principal for non-fulfillment regarding their contractual obligations. Handling a performance bond claim has various levels of importance, including cooperation, agreements, and challenges. One of the most trying decisions is to admit or deny liability. After analyzing contract documents, bond forms, factual issues, and possible defenses, the surety has to eventually decide whether to perform. 

Surety partners will typically work in conjunction with contractors to avoid claims or mitigate the damages. Selecting the ideal surety with a good track record of minimizing legal fees while resolving claims is paramount for any contractor. 

If you are seeking a construction bond, contact the specialists at Construction Bonding today. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/ 

While public (federal, state, or local agencies) projects are required to provide performance and payment bonds, private construction generally does not require bonds. For privately-owned construction jobs, it is up to the owner to secure a bond. 

While most contractors will work with a surety to provide the bond, some contractors will make it mandatory for the owner to pay for the bond. Depending on the contractor, size, type, and duration of the project, bonds can range in price between one-half to three percent of the contract.

Some of the reasons why private owners elect to secure bonds include: 

• Lenders: Owners may be required to provide bonds if a lender is financing the job. 
• Contractors: Sureties will thoroughly screen contractors for proficient operations, management, experience, and financial stability. 
• Guarantees: Bonded projects are more likely to be completed.
• Support: If trouble emerges, the surety will intervene and offer support to avoid default. 

Private owners choose to forgo bonds because: 

• Price: Bonds are expensive, and it can be challenging to justify higher expenses. 
• Vetting: Financial and other records are generally difficult to obtain, but some contractors provide access to sureties.
• Contracts: Countless provisions require clear communication between the surety and contractor.

Practically speaking, securing bonds for privately-owned construction jobs depends on the experience of the contractor, size, and nature of the project. Bonding might be justified if the project is big but the contractor is smaller. If the contractor is unfamiliar with the structure or components, a bond might be a good idea. Lastly, if a private construction job does require a bond, it is imperative for the owner to review the form with an attorney to ensure everyone will comply with the stipulations. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/ 

Contract workers are required to attain a license or permit bond from a surety bonding company, such as ourselves. They are also required to obtain worker’s compensation and liability coverage for their crew. The difference between bonding and insurance can be a bit confusing and unclear. Read on to learn how to decipher between the two.

What is Workers Compensation and Liability Insurance?

Worker’s Compensation is a type of insurance policy that guarantees the injured employee to receive medical care, disability/rehabilitation, and have expenses related to the injury covered. Typically, while having worker’s compensation coverage, employees have their right to sue for negligence waived.

Some employees may opt-out of their employer’s worker’s compensation policy. Certain employees may have a pre-existing condition or injury not covered by worker’s compensation. In either of these cases, it’s important to maintain liability coverage, as the employee may file suit against the employer. Liability insurance protects employers from instances listed below.

Workers’ Compensation & Liability Insurance Covers:

• workplace injuries
• injuries occurring during work-related travel
• injuries due to workplace violence
• natural disasters
• illnesses
• fatalities

What is a Contractor License Bond?

Each state holds its own requirements for permitted construction work, but all require at least a permit bond and/or a license bond. Contractor license and permit bonds are a type of surety comparable to a line of credit and allow the contractor to perform work within that jurisdiction. The bond is an agreement between the contractor, the state licensing agency, and the surety company stating that the principal contractor will provide services in accordance with state and federal law (adhere to building codes, etc.)

If the contractor fails to fulfill the terms, a claim can be made against the bond, and the surety will investigate. If the surety concludes that the claim is legitimate, it will usually pay compensation to the claimant, up to the bond’s total value. The contractor remains liable for their obligations and must repay the surety, even though the surety company initially covered the claim. Therefore, these types of bonds are associated to a line of credit rather than insurance.

Summary of Contractor License Bonds, Workers Compensation, and Liability Insurance

• A contractor license bond protects the contractor’s clients and the public. It’s a line of credit that, if used, requires the contractor to repay any compensation the surety had to extend out to the claimant(s).
• Worker’s compensation is an insurance policy that covers employees in cases of work-related injuries.
• Employer liability insurance protects/covers employers from lawsuits that may arise in cases of work-related injuries.

Understanding the requirements for permitted construction work can be complicated. At Construction Bonding, bonds are all we do. Call us today for professional, straightforward, and sound surety advice.

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At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 or visit us at www.bondingspecialist.com today.

Written by the digital marketing staff at Creative Programs & Systems: www.cpsmi.com