If you have been in the construction industry for some time now, you would probably know something known as a performance bond. It is a financial instrument or a guarantee involving the principal (contractor), surety (the company issuing the bond), an obligee (the party who receives the bond in case of a default). Most project owners will require you to have this bond since it protects them if there are damages or you don’t fulfill your obligations as part of the contract. But why should you get a performance bond construction projects? The reason is that it establishes your credibility, reliability and expands your scope of getting large projects in the future. It also covers your immediate payment if required, although you will be required to repay the amount to the surety company in the future. But first, you should find the right company that issues the bond. What are the ways of doing that?
Do They Have a Valid License?
In most cases, a surety company issuing the bond in your country will have to possess a valid license that allows them to issue a bond in that territory. You should check if the company meets the licensing requirements. It would also help if they were associated with some professional associations in your country and understands the local environment.
What is Bond’s Cost?
The cost at which the company offers the bond depends on the coverage level, warranty period, premium amount, and the contract’s duration, besides other factors. Your company’s character, capital, and capacity will also play a role in determining the price. Some companies also have unique ratings for long-term projects, so you should consider that beforehand. Usually, the bond will cost you between 1% and 1.5% of the contract price, but the specific price will depend on the coverage amount demanded by the obligee or owner.
What Documents Do They Want?
You should have the necessary paperwork before you apply for a construction bond. Usually, the brokerage will require documents including your company’s financial statements, personal net worth (to be shown to the obligee), a copy of your bank’s terms and conditions, and your resume.
Do They Issue Bonds for Newbies?
A brokerage will be willing to issue bonds to an experienced contractor or someone who has worked in the industry for some time. But what if you are inexperienced and just starting? You could ask them if they have a program for new construction firms and if it is suitable for you. Many companies do have structures for individuals starting out.
How Long is the Approval Process?
The duration of the approval process varies from one company to another but usually takes between a day and three weeks. It is better to go with one that approves your surety bond within one or two days, thus allowing you to begin work early.
Are They Trustworthy?
Any brokerage you choose should be trusted by surety markets in your country or area and enjoy a healthy relationship with them. Since they usually have a website, browse the testimonials section and see what the other customers say about them. It would also be good to check their team and how many years of experience they have. You should also check if they have a free consultation service with a phone number and email address to clear any doubts you might have before proceeding.
These are some ways of ensuring that you select the best company to get a performance bond for construction projects, mainly if it’s your first time. A contract bond is necessary for any significant project work and will benefit you immensely in the long run.