are Contractors who need Surety Bonds evaluated?
What is the charge/fee
for a bid bond?
is the charge/fee for a performance bond?
is a License or Permit Bond?
What is a Surety
What is a Contract
What is a Bid Bond?
What is a Performance
What is a Payment
a bond program?
need to provide this information every time I need a
you bond me if I have poor credit?
you bond me if I lost money last year?
do bonding companies look at on my business financial
of a job can I bond?
What is the Miller
Act? What are Miller Act Bonds?
How are Contractors who need Surety Bonds evaluated?
The Surety industry evaluates three
basic factors, know as the three "C's".They are:
1. Character: does the Principal's record suggest good character,
that he or she will be faithful to their obligations?
2. Capacity: does the Principal have the skill, experience
and knowledge necessary to perform his or her obligations?
3. Capital: does the Principal have the financial wherewithal
to support or finance the completion of the project?
What is the charge/fee for a bid bond?
Bid bonds are free
and are provided to the contractor as a service by
the bonding agency.
What is the charge/fee for a performance bond?
Performance bond rates
are based on the three "C's". The highest
rate can be 3% of the contract amount. The better the
three "C's" the lower the rate.
What is a License or Permit Bond?
A bond which is required
as a condition of receiving a License to engage in
a certain business or as a condition of receiving a
permit to exercise a certain privilege. The bond guarantees
that the Principal will perform his or her obligations
under the license or permit. These bonds are designed
to protect the general public as well as the Government
agency issuing the permit or license. License or Permit
bonds are required from businesses as well as individuals.
What is a Surety Bond?
A written agreement
whereby one party, called a Surety, makes promises
or guarantees on behalf of another party, called a
Principal. In the agreement, the Surety makes these
promises or guarantees to a third party called the
What is a Contract Bond?
Where one party (Principal)
has been awarded a construction or supply contract
with a condition that a bond from a Surety will be
given to guarantee to the Owner (Obligee) the performance
of the Principals obligations under the contract.
What is a Bid Bond?
A bond given to a
Federal, State, County or Municipal Government agency
at the time of a bid which guarantees the good faith
of the Contractor (Principal), i.e. that if the Principal
is awarded the contract the Principal will enter into
the contract and post the required Performance and
Payment Bonds. Bid bonds are typically required only
as a percentage of the Principal's bid, usually 5%.
What is a Performance Bond?
The Performance Bond
follows the bid bond if the Principal (Contractor)
was deemed low bidder and is awarded a contract. The
Performance Bond guarantees that the contractor will
complete the contract in accordance with the terms,
conditions and specifications of the contract. The
Performance Bond is required as a condition of being
awarded the contract.
What is a Payment Bond?
A Payment Bond is
usually required as a companion to the Performance
Bond. The Payment Bond guarantees that material suppliers
and direct labor suppliers will be paid. Though Payment
bonds are typically separate documents they are issued
for no extra charge, when required.
What is a bond program?
A bond program is
the single job limit, aggregate limit, and rate we
set for you each year. Sometimes if the contractor
isn't of great financial strength we may not set a
bond program but will work with the contractor on a
bond by bond basis.
Will I need to provide this information every time I need a bond?
Every year we reevaluate
your program. We consider what size bonded jobs you
have done with us and how they went. We also get a
Business financial statement, Bank reference letter,
Work on hand, certificate of insurance, and a personal
financial statement from you every year. We expect
this information in our office approximately 90 days
after your fiscal year end.
Will you bond me if I have poor credit?
We can look at the other underwriting information.
Sometimes we will write the bond but have all contract
funds go through and escrow company. There is an additional
fee for this but it allows us to write the bond for
you. We will also look at taking collateral in the
form of an Irrevocable Letter of Credit (ILOC). You
will need to get the ILOC from your bank. Typically
they charge for this. The ILOC must be on our form
or approved by the surety company prior to writing
Will you bond me if I lost money last year?
don's like to see contractor's lose money. If you still
have adequate equity in the company and have a good
explanation of why you lost money, there is a chance
we can do something for you.
What do bonding companies look at on my business financial statement?
We look at what
level of statement wether it is a compilation, review,
or audit. Audit being the best. We look at how revenues
are recognized. The preferred method is % of completion
method. We then evaluate what your working capital
is which is current assets - current liabilities. Keeping
in mind that we don't give you dollar for dollar on
all items. Then we evaluate what your equity is in
the company and your debt to equity ratio. The more
equity you have the better and a we like to see a debt
to equity ratio of at least 3:1. We then look at what
your total revenues were for the year and how much
you made on those revenues.
How large of a job can I bond?
on your working capital, equity, debt to equity, last
years revenues, and largest previous job either bonded
or unbonded. We like to see at least 10% working capital
of the job size. Debt to equity of 3:1. Revenues considerably
greater than the job size. Typically we will go as
high as 150% of your largest previous job.
What is the Miller Act? What are Miller Act Bonds?
The Miller Act, enacted
by Congress in 1935, requires that any contractor performing
a Federal Construction contract post a Payment Bond
along with their Performance Bond. This ensures that
all Federal buildings and properties remain free of
liens filed by unpaid suppliers of materials and direct