San Bernardino Payment & Performance Bonds
What Are Payment and Performance Bonds?
Payment and Performance bonds are distinct yet complementary surety agreements that are commonly required for public works projects in San Bernardino.
* Should the contractor default on these obligations, such as failing to complete the project to the agreed standards or abandoning the work, the performance bond provides a financial recourse for the obligee.
These two types of bonds are typically issued together as a P&P bond package, especially for public works.
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How Performance & Payment Bonds Work in San Bernardino
Performance and Payment bonds in San Bernardino, as elsewhere, are a three-party agreement.
The Principal
This is the contractor or construction company that qualifies for and purchases the bond and is obligated to perform the work and pay its suppliers and laborers.
The Obligee
This is the entity requiring the bond, typically the project owner (e.g., the City of San Bernardino for a municipal project, or a general contractor requiring bonds from subcontractors). The obligee is the beneficiary of the bond's protection.
The Surety
This is the insurance or surety company that issues the bond, guaranteeing to the obligee that the principal will meet its contractual obligations.
While P&P bonds are sometimes confused with insurance products, it is important to understand they function differently from traditional insurance policies.
Insurance policies are a two-party agreement designed to protect the policyholder from their own losses. Surety bonds, however, protect the obligee (the project owner) and other stakeholders like subcontractors and suppliers, not the contractor who purchases the bond.
Another important distinction between insurance and surety is that the principal on a surety bond must provide indemnity to the surety company. This means that if the surety fulfills a claim, it will seek reimbursement from the contractor (the principal) for all costs and expenses incurred. This reimbursement clause underscores the contractor’s ultimate accountability and is a fundamental distinction from insurance.
Key P&P Bond Requirements in
the City of San Bernardino
Contractors operating in the City of San Bernardino must navigate a framework of state and local regulations pertaining to Payment and Performance (P&P) bonds. The City adheres to the California Code and the San Bernardino County Code of Ordinances for general P&P bond stipulations, but it also imposes specific requirements in certain contexts, particularly for design-build projects.
For Bonds & Insurance /
Design Build Projects
A notable local provision is found in the San Bernardino City Code of Ordinances § 12.21.050, which specifically addresses “BONDS AND INSURANCE” for “DESIGN-BUILD” projects.
Under this ordinance, design-build contractors undertaking projects within the city are mandated to provide P&P bonds that meet two key criteria:
The bonds must be issued by a state-admitted surety.
This requirement ensures that the surety provider has met California's rigorous financial and regulatory standards, offering an additional layer of security and trustworthiness to the City and its contractors. It effectively filters out potentially less stable surety providers, safeguarding public and private interests.
The amount of the payment bond cannot be less than the amount of the performance bond.
This specific stipulation for design-build projects highlights a strong municipal commitment to protecting subcontractors, suppliers, and laborers. Design-build projects consolidate design and construction responsibilities under a single entity, which can concentrate risk. By mandating a robust payment bond, the City aims to ensure that downstream parties are paid even if the primary design-build entity falters. This proactive measure fosters a more stable construction environment and can attract reliable subcontractors to city projects.
* For any San Bernardino project requiring P&P bonds, these must be filed by surety providers duly authorized to operate in California. This general requirement reinforces the state’s oversight in ensuring that only qualified and financially sound sureties participate in public and private construction safeguarding.
*Verify any requirements with the federal, state, or local agency directly and read our disclaimer.
Understanding the Cost of San Bernardino City P&P Bonds
The cost of obtaining Payment and Performance bonds for projects in San Bernardino City is determined by a comprehensive underwriting process. Typically, a contractor’s bid bond, performance bond, and payment bond for a specific project are underwritten by the same surety company. While there is technically no charge for bid bonds, sureties provide the premium rate for the performance and payment bonds at the time of the bid so the contractor knows how much bond premium to factor into their bid.
When performance and payment bonds are required at the same time, the premium covers both. As a general industry benchmark, contract bond premiums can range between 0.5% and 3% of the total contract amount, though this can vary.
Sureties evaluate several key factors to determine a contractor’s bond premium rate. These elements collectively paint a picture of the contractor’s reliability and financial stability, with lower perceived risk translating into more favorable premium rates.
| Description | How It Impacts Your Premium | |
|---|---|---|
| Contract Amount | Surety rates are often tiered, lowering as the project size increases. | Larger contracts typically have lower premiums. |
| Company Financial Strength | Assessed through financial statements (balance sheet, income statement, cash flow). | Stronger financial health, positive working capital, and profitability typically lead to lower premiums. |
| Personal Credit Scores (Owners) | Personal credit history of the principal owners of the construction company. | Good personal credit scores are often indicative of financial responsibility and can positively influence premium rates. |
| Project Experience & Track Record | Demonstrated history of successfully and profitably completing projects of similar size and scope. | A proven track record of successful project completion reduces perceived risk and can lower premiums. |
| Bonding History | The contractor's history with previous bonded projects. | A good history of managing bonded projects and maintaining adequate bonding capacity is viewed favorably. |
| Quality of Financial Statements | Whether financials are internally prepared, compiled, reviewed, or audited by a CPA, especially for larger bonds. | CPA-prepared financials (reviewed or audited) provide greater assurance and can lead to better terms for larger bonds. |
For more comprehensive information on this topic, contractors can refer to CSBA’s detailed article, “Understanding the Cost of a Construction Performance Bond”.
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Why Contractors Trust CSBA for San Bernardino City P&P Bonds
Choosing the right surety company is a critical decision that can significantly impact a contractor’s ability to secure projects and grow their business in San Bernardino. While Payment and Performance bonds can sometimes be obtained through traditional insurance agents, contractors consistently find superior value and expertise by partnering with surety-only specialists like CSBA.
The fundamental difference lies in specialization. General insurance agents often handle bonds as an ancillary product, lacking the focused experience, extensive relationships with surety underwriters, and nuanced understanding of bonding requirements that a dedicated surety agent possesses. CSBA, as a local surety agent, offers in-depth expertise on surety bonds and the particular project requirements within San Bernardino City and County. This local knowledge can save contractors considerable time, transforming the surety provider from a mere bond issuer into a valuable local partner.
The CSBA Difference
CSBA’s unmatched experience and stability further set it apart. As one of California’s largest surety-only agents, CSBA has been dedicated to helping contractors obtain surety bonds since 1984. The collective 225 years of experience held by CSBA’s surety underwriters and agents translates into a deep reservoir of knowledge and problem-solving capability.
Streamlined Process
Contractors also benefit from CSBA’s commitment to a streamlined application process, competitive rates, and quick turnarounds. In the fast-paced construction industry, especially when facing bid deadlines, efficiency and speed are paramount. CSBA’s focused expertise allows for an optimized process, helping contractors secure the necessary P&P bonds promptly and at favorable terms.
CSBA provides personalized support and guidance throughout the bonding process. Understanding that no two businesses are identical, CSBA tailors its approach to meet the unique needs and situations of each contractor. The presence of internal underwriters on the CSBA team allows for direct collaboration with clients, facilitating a smoother journey and helping to structure their financial presentation to build bonding capacity for future growth.
CSBA has a local presence with an Inland Empire office. This allows for in-person consultations, providing San Bernardino contractors with direct access to expert advice and personalized service. This combination of specialized knowledge, extensive experience, operational efficiency, personalized service, and local accessibility makes CSBA a trusted partner for contractors seeking San Bernardino City P&P bonds.
Get Your San Bernardino City Performance and Payment Bonds with CSBA
Navigating the bonding requirements for projects in San Bernardino City demands expertise and a reliable surety partner. Partner with California’s leading surety-only specialists at CSBA to secure your Payment and Performance bonds with confidence and efficiency. Our team’s experience in bonding construction projects in San Bernardino helps ensure you meet all the bond requirements with ease.
We are committed to providing contractors with:
- Local Expertise: Understanding the specific nuances of the City of San Bernardino and County requirements.
- Fast Turnarounds: Streamlined processes to meet your critical deadlines.
- Competitive Rates: Leveraging our extensive surety market relationships.
- Personalized Service: Tailored solutions to fit your unique business needs.
Inland Empire Office
4850 Arlington Ave. Riverside, CA 92504
- Fax: (714) 516-9563
City of San Bernardino Performance and Payment Bonds (P&P Bonds) FAQs
Who is required to obtain P&P Bonds for projects in San Bernardino City?
P&P bonds are commonly required for municipal (public works) projects in San Bernardino City. They are also mandated under the federal Miller Act for federal construction projects undertaken within the city if the contract value exceeds $100,000. Additionally, San Bernardino City Ordinance § 12.21.050 specifically requires design-build contractors to provide P&P bonds from a state-admitted surety for city projects. Private project owners may also require these bonds.
What's the difference between a Performance Bond and a Payment Bond in San Bernardino?
A Performance Bond guarantees to the project owner that the contractor will complete the project according to the contract’s terms and conditions. If the contractor defaults, the surety steps in to ensure project completion or compensate the owner. A Payment Bond guarantees that the contractor will pay the subcontractors, laborers, and material suppliers involved in the project, protecting these parties from non-payment.
What happens if a contractor defaults on their obligations?
If a contractor defaults on their obligations (e.g., fails to complete the project under a performance bond, or fails to pay subcontractors under a payment bond), a claim can be made against the bond. The surety company is then responsible for investigating the claim and, if it is valid, resolving the issue. This resolution might involve providing financial compensation to the obligee, finding another contractor to complete the project, or ensuring that unpaid parties receive their due.
Is A Payment & Performance Bond Necessary?
The requirement for P&P bonds is widespread. In San Bernardino, they are a standard mandate for municipal projects. Beyond local requirements, the federal Miller Act mandates both payment and performance bonds for most federal construction projects valued at over $100,000. This underscores the critical role these bonds play in safeguarding public funds and project execution at multiple levels of government. Furthermore, private project owners increasingly require P&P bonds to mitigate their own risks and ensure contractor accountability. This broad applicability signifies that P&P bonds are not an obscure local stipulation but a recognized best practice in managing construction risk across various project types.
How long are San Bernardino P&P Bonds valid?
San Bernardino P&P Bonds are typically valid for the entire duration of the construction project. Their coverage extends through project completion and often includes any subsequent warranty periods or statutory claim periods as defined by the specific contract and relevant California laws.
What happens if a claim is filed on a San Bernardino P&P Bond?
If a claim is filed (e.g., by the project owner for contractor default, or by a subcontractor for non-payment), the surety company that issued the bond will investigate the claim’s validity. If the claim is deemed valid, the surety will fulfill its obligation under the bond terms.
Subsequently, the surety will seek indemnification (reimbursement) from the contractor for any losses and expenses incurred in settling the claim.
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