What are Surety Bonds and How Do They Work?

by |

2021 promises to be banner year for Florida’s transportation and infrastructure industry with the State Transportation Work Program. This program includes vital funding to increase infrastructure capacity, new highway construction, bridge repairs, and seaport, aviation, and transit program improvements. As a result, the need for obtaining Surety Bonds will  be greater than ever.

Surety Bonds perform an essential role in the construction industry. A Surety Bond is a three-way contract between the surety (the company providing the bond), the principal (the contractor) and the obligee (the project owner). The principal usually applies for the Surety Bond with the surety and it is to protect the obligee’s interest.

A Surety Bond is simply a three-party agreement or contract where the first party, the surety, guarantees the performance of the second party, the principal (contractor), if they default on their obligation to the third party, the obligee (project owner).

The reason Surety Bonds work so well is simple. They help to take the risk out of a risky business. Surety Bonds are designed to protect your interest from the actions of a third party.

Types of Surety Bonds.

There are variety of Surety Bond types designed to meet your needs. In fact, almost any contract or obligation can be bonded. The four most common types of Surety Bonds include Contract Surety Bonds, Commercial Surety Bonds, Court Surety Bonds, and Fidelity Surety Bonds. But, for this article, we will focus on the most common bonds used for road and highway work – Contract Surety Bonds.

Contract Surety Bonds

In the construction industry, the most common bond types are Contract Surety Bonds. They include Bid Bonds, Performance Bonds, and Payment Bonds. All are needed for different purposes to ensure that the interests of the obligee are protected, especially if the principal fails to meet the terms of their contract.

Bid Bonds financially protect an obligee if the bidder awarded the contract fails to sign the contract and fails to provide the essential Performance and Payment Bonds.

Performance Bonds, on the other hand, are put in place to protect the obligee from monetary loss if the contractor fails to deliver the job according to their agreement.

Payment Bonds are there to guarantee that the contractor is going to pay the workers, subcontractors, and material suppliers involved in the project.

A Contract Surety Bond protects the project owner by guaranteeing that the contractor will follow the specifications and perform the work laid out in the construction contract. It also ensures that certain labor, materials suppliers, and subcontractors will be paid.

What Do You Need for a Surety Bond?

Before you apply for a Surety Bond in Florida, make sure that all your documents are in order so that you can expedite the whole process. Essential documents include:

Financial Records: Surety companies will ask for both personal and business records. For businesses with less than $20 million in sales, you will need to provide financial statements for the last year and for the interim period in this year, most recent personal and corporate tax returns, financial records of majority shareholders, and a bank reference letter. Companies with more than $20 million in sales need to show their audited financial records.

Resumes: Some surety companies may ask for resumes of key personnel. Make sure to highlight any relevant experience.

WIP Form: WIP stands for “Work in Progress” form. Ask your surety company for the relevant form. This details all the projects you have completed recently, ongoing work, and any outstanding surety.

Insurance: Some surety companies may insist on work insurance to see that there are no uninsured liabilities.

References: Companies issuing Surety Bonds in Florida will ask for references from associated parties, such as past clients, suppliers and so on. The references are an indication of other’s trust in your ability.

Apply for a Surety Bond Online:

Surety Bonds are usually required for contractors to work on projects. Without it, a contractor might not be able to work with project owners, workers, and material suppliers. These are the people who play a significant role in the successful completion of contracted jobs. Surety Bonds protect project owners if the principal does not fulfill their obligations per the terms of their agreement.

With a new administration also proposing to make “historic investments in infrastructure”, there should be plenty of new projects in 2021 and numerous contractors bidding on these projects. With Surety Bonds usually required to even start the bidding process, you must find a reputable Surety Bond company to apply with – one that has a strong reputation and is an industry leader. Before choosing a surety company, make sure they have the available resources to support the project you are bidding on.

But obtaining a Surety Bond can be a grueling, time intensive process. That’s why more companies turn to America’s number one provider of Surety Bonds, Nielson, Hoover & Company. To learn more, call 305.722.2673.

Understanding How Maintenance Bonds Work in a Real Estate Project

by |

Every real estate transaction carries high value and a lot of risk with it. Surety bonds protect the investment of a project owner and ensures he gets value for his money. Contractors working on real estate projects have to furnish surety bonds before they are awarded the contract. They have to furnish maintenance bond in particular, which ensures that the building they build will stay in the optimum condition for at least a specified time. After that period, any defect or fault will not be covered under the scope of the bond.

Different Parties to Maintenance Bonds

• Contractors, purchase these bonds to showcase the quality of their work and durability. They have to get these bonds as a mandatory document to win the project.
• Project owners, who keep these bonds as a surety that their real estate project will be delivered as per contracted terms. If there is a default, they will be compensated for it and won’t have to cover for the default from their pocket.
• The surety company, which issues the bond runs a full check on the contractor’s background. They have to run these checks to make sure that they are putting their money on the right person. Before they issue the bond they create necessary channels required to later recover the money from the contractor in case he defaults.

More about Maintenance Bonds

Under maintenance bonds, contractors have to pay the entire money of the bond value in full, as compared to an insurance bond where the premium is just a fraction of the insurance value.

In case of a default, the contractors at times try to pay in cash for losses directly to the project owner. A maintenance bond restricts them from doing such a thing outside the scope of the bond.

Decoding How Performance Bonds Work and Why You Need Them

by |

Everyone expects that the person they hire should complete the assigned job. But there can be instances when that job is not completed as intended, or not completed at all. A surety bond binds the contractor taking up the project to deliver what he committed to do. In case he doesn’t, the surety bond compensates the loss incurred by the project owner, charging the contractor for the same later.

Understanding Performance Bonds
Performance Bonds ensure optimum performance by the contractors throughout the project duration. These bonds are the most commonly used surety bonds for public work contracts that have an estimated value of $100,000 or more. However, that is only one of the conditions for issuing them. These bonds can also be used for managing company operations that may not be bound by this cap. Bidding could be done initially, post which the winning contractor has to furnish a performance bond as a guarantee for successfully completing the project.

These bonds create a win-win situation for all, bringing lucrative contracts for contractors and ensuring highly satisfying results for the project owners.

How Performance Bonds Work
Performance bonds safeguard the interests of the project owner if a work is not done satisfactorily or if the contractor has defaulted deliberately or even unwillingly. Since this risk of default is always there, surety bond institutions (banks/insurance companies/private lenders) run an extensive check on the contractor’s history before issuing the bond. They take into account his past experience, risk capital, financial statements, and more. Under the circumstance where the contractor’s history doesn’t seem credible enough, he is not issued the bond, thereby denying him the chance to win a contract too.

This way, there is a very little scope for a miss to ever happen. And if it happens, the surety bonds take care of the losses. There are rarely any government or private projects involving large investments that happen now without performance bonds.

How to Buy Commercial Surety Bonds

by |

Commercial bonds are required for licensing by commercial enterprises and professionals. The bond is meant to ensure that the principal follows the rules and regulations of the industry and the government. If you need a commercial surety bonds Florida, you can purchase one from a surety company by following these steps:

– Decide on the type of commercial bond you need

There are many types of commercial bonds, such as a contract bond, non-contract bond, license & permit bond, bid bond and more. The bond required will depend on circumstances. Some bonds are required as part of a bidding process or a contractor contract. First, you need to know the type of commercial bond you require.

– Look for a surety company

Finding a reliable surety company is pretty easy with a simple web search. But it’s important that you look for the right company. Look for a company that specializes in commercial surety bonds Florida and has a good credit rating. The credit rating of the surety company will reflect on your own credibility.

– Fill out the form

Most surety companies today take applications through their website. You can simply fill the form and submit it, along with the required supporting documents. You will have to submit financial documents like bank statements and balance sheets. Your application will then be assessed by an underwriter and background checks will be done. Finally, if your application is accepted, you will have to pay the bond cost to buy the commercial surety bonds Florida.

How to Pick the Right Contractors Bonding Company

by |

Contractors commonly are required to have bid bonds, performance bonds and payment bonds. If you work as a contractor, sooner or later you will need to be bonded. It’s important to pick a reputable contractor bonding and insurance company. Here’s a simple primer on picking the right company:

Do your research: There are many bonding and insurance companies to pick from. You can do some online research and ask your peers in the industry for their recommendations. Make sure you go through the insurance companies’ websites and understand their terms and conditions.

Check credit ratings: Just as the insurer will check your credit ratings, you should also check the insurer’s rating. Their credit rating will affect your own position. If you submit a bond from a company known for unreliability or dishonest practices, your application may be rejected. Check the ratings given by independent agencies that score bonding companies.

Licensing: Make sure the contractor’s bonding and insurance company is licensed to operate in your state. If you are working in more than one state, go with a company that is licensed in all the states you are operating in. Many bigger companies will have multi-state licenses.

Treasury listing: Bonds are most frequently required for state or federal projects. A treasury listing, commonly known as a T-listing, means that the company has the approval to write bonds for federal projects. A T-listed bond also acts as an automatic check for its reliability.
To be approvedfor a T-listing, a company goes through rigorous scrutiny from the U.S. Department of the Treasury.

Bond capacity: If you are dealing with multiple bonds, the bond capacity of the contractors bonding and insurance company becomes critical. Every company will have an aggregate bond limit beyond which it cannot issue bonds. If you need multiple bonds across different states, the aggregate limit becomes very important