• A surety bond is an instrument under which one party guarantees to another that a third will perform a contract.

  • Construction is a very risky business and each year many contractors, large and small alike, fail before they complete their projects or pay their subcontractors or suppliers. Over the years, surety companies have paid billions of dollars because of contractor failure on bonded projects.

  • These costs would have been borne by the owners of the projects without bonding.

  • Federal law (the Miller Act) mandates surety bonds for all public works contracts in excess of $100,000. Federal procurement officials may, at their own discretion, require bonds on projects below that amount.

  • There are three types of bonds: the bid, performance, and payment bond. They protect the owner by guaranteeing that the contractor is able to enter into the contract, perform the work on time and according to the contract and that certain workers, subcontractors and suppliers will be paid.

  • Surety bonds are being required more often by owners and financial institutions on private building projects to protect their company and shareholders from the enormous costs of contractor failure.

  • Surety bonds, through its rigorous prequalification of contractors, protects the owner and benefits the lender, the architect and everyone else involved with the project by evaluating whether the contractor is able to translate the project's plans into a finished project.

  • Bonds help screen out unqualified contractors and gives the assurance that the contractor, awarded the project through a competitive bid or other awarding method, is able to perform the job. Reputable contractors will not object to providing surety bonds. The bond cost is minimal compared to the contract value and peace of mind attained!

  • The cost for bonds varies, but generally is one to three percent of the contract amount. On very large projects, the cost can average less than one percent.
 



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