Common Questions About Performance Bond requirements
Do you know the ins-and-outs of performance bonds and how to get one? These bonds can be confusing, so we interviewed our own Senior Vice President of Surety, Mark Levinson, for the basics of this specific surety bond. Having recently written an article for Construction Savvy magazine on this very topic, Mark’s expertise delivers all the answers you need regarding performance bonds for construction companies and contractors.
What is a construction performance bond?
A performance bond is a surety bond issued by an insurance company that guarantees the completion of a project by a contractor. Most contracts involving government money require bonding to protect taxpayer dollars. In the private sector, it’s used as a risk management tool to ensure that building projects get finished.
Why do you need a performance bond?
A performance bond is a safety net provided by the insurance company (guarantor) for the contracting entity (obligee) to ensure the work will be completed even if the contractor (principal) is unable to do so themselves. If the surety company obtains a bond for you, it shows that you and your business are financially stable and a good risk.
How much does a construction performance bond cost?
The cost of a performance bond varies based on the bond type and other factors. The price of a performance bond is tabulated using the full contract amount of the job. Typically, rates can range from .5 to 4 percent based on various considerations such as credit score.
How much does a one million-dollar construction bond cost?
Larger, qualified companies who are vying for multi-million dollar performance bonds usually pay a rate of .5 to 1 percent. For example, you would pay roughly $300,000 to secure the performance bond for $30 million contract. Smaller or less experienced companies may see higher performance bond rates around 3 or 4 percent.
Once a bond is issued, it cannot be canceled; this is why the premium is fully earned.
How do I get a performance bond?
Performance bond requirements determine how you get started. These requirements can range from simple completion of a small credit application to a full submission. When completing a full submission, be prepared to complete a questionnaire, provide business and personal financials, and respond to specific questions for clarification.
The good news is, Brunswick Companies can tell you what your options are within five minutes. Give Mark Levinson a call today at 330-865-4265 and he will discuss what steps you need to take to win that contract.