San Francisco Contractor Surety Bonds
Types of San Francisco Contractor Surety Bonds
Surety bonds are an important requirement for obtaining many construction projects. Each bond is a three-party agreement that binds the principal, the obligee (or beneficiary), and a surety.
The principal is the contractor who needs the bond. The obligee is the project owner or general contractor who requires the bond. The surety provides the financial assurance that the principal will fulfill the contract obligations, and if not, the obligee can make a claim on the bond.
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Types of Surety Bonds
Here are three of the most important relating to construction:
Bid Bonds
Bid bonds are typically required from each contractor who wishes to bid on a public construction project. This type of bond provides assurance that a surety has prequalified the contractor and is willing to support the performance and payment bonds if the contractor is low and awarded the contract. Its purpose is to protect the project owners from bidders who might back out after the bid or fail to provide the required performance and payment bonds.
Performance Bonds
Performance bonds from a surety guarantee to the project owner that the contractor will fulfill all contractual obligations per the terms and conditions of the contract. If the contractor defaults, the surety company will financially compensate the project owner or take over the project to find and hire a replacement contractor.
Payment Bonds
Payment bonds ensure that laborers, suppliers, and subcontractors will be paid for their work and materials. These bonds are often issued in conjunction with the performance bonds.
San Francisco Bid Bond, Performance Bond, and
Payment Bond Requirements
According to San Francisco Administrative Code 6.21(a)(4), all bids in excess of a certain threshold amount must provide bid security in the amount of 10% of the contractor’s total bid. This bid security can be in the form of a bid bond. Also, according to 6.22(a), before a contract in excess of $25,000 is issued, a 100% performance bond and 100% payment bond are required.
What Contractor Surety Bonds Cost in San Francisco
Bid bonds typically have no upfront costs. However, the contractor should include the premium for performance and payment (P&P) bonds in their bid, so knowing the premium rate prior to the bid is important. Premium rates for P&P bonds range from 0.5% to 3% of the total contract amount. Many factors influence surety bond rates, including:
Bond Size
It’s common for the premium rate to tier down as the contract amount increases.
Contractor’s Credit Score and Financial Health
Having strong personal credit and an ability to provide good financial information helps lower premium rates.
Type of Financial Statements Submitted
CPA-prepared financial statements help qualify contractors for better rates than internal financials as they provide more credibility being prepared by an outside third party.
Past Project Performance
A track record of successfully completed and profitable projects can lead to improved rates.
Volume of Bonded Work
Contractors who perform a lot of bonded work and have an ongoing, active relationship with their surety, providing frequent updates and an open line of communication, often qualify for lower premiums.
*Verify any requirements with the federal, state, or local agency directly and read our disclaimer.
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How to Apply for Surety Bonds in San Francisco with a California-Approved Surety Company
Here are the general steps to apply for surety bonds for San Francisco projects.
Choose an Experienced Surety Bond Agency
Seek a surety agent who is a specialist in contract bonding with local expertise in San Francisco.
Complete a Contractor Surety Bond Application
Submit the necessary details about your company, project history, and desired bond amount. Your agent will be able to guide you on what is required. Bond needs under $1,000,000 will require less information than bond needs over that threshold.
Prepare and Submit Financial Documentation
For projects over $1 million , be prepared to submit company financial statements, including a balance sheet and profit & loss statement, personal financial information, and current and prior project information. For larger projects, surety companies may require CPA-prepared financial statements from the contractor. A strong surety agent will be able to walk you through this.
Receive Approval from the Surety Company
It may take a few hours to a few weeks for a surety bond to be approved, depending on the bond size and complexity, and the quality of information submitted.
Get Bonded and Start Your Project
Once the bond is approved, your agent will be able to issue and provide the bond to you, so that you can move forward without worrying about the bonding requirements.
Talk with Your Agent About Future Bond Needs
Make sure you’re ready to bond the next project without having to start the process over from scratch. Let your agent know what you think you need in terms of a bond program and talk with them about establishing a formal bond program. Knowing your total bond capacity will help.
Why San Francisco Contractors Choose CSBA for California Surety Bonds
As one of the largest surety-only agencies in California, we have specialized in contractor surety bonds since 1984. With a team of agents and underwriters, our combined 225+ years of experience developed a proven streamlined bond application and fast turnaround for contractors like you, so you can focus on completing projects in San Francisco.
FAQs
How Long are Bid Bonds Good for?
Bid bonds typically remain valid 90 to 120 days after bid submission, depending on the project owner’s requirements. Some project specifications state the exact timeframe, while others may be silent. In cases where the project award is delayed, the owner may request a bond extension. Always review the bid documents carefully to understand the bid bond coverage period for your San Francisco project.
How Long are Performance Bonds Good for?
A performance bond remains in effect until the contracted construction work is completed per the terms and conditions of the contract, including any warranty period specified in the contract. The bond guarantees that the contractor will fulfill all contractual obligations.
How Long are Payment Bonds Good for?
Payment bonds remain active until the completion of the construction project and the statutory claims period has passed. These bonds protect subcontractors, suppliers, and laborers by guaranteeing payment per the contract terms. In California, this timeframe typically includes a filing period after project completion.
Are Surety Bonds Paid Monthly?
No, surety bonds are not paid monthly. They are typically paid in full at the time the bond is issued. The premium is based on the total contract value so if the contract amount increases or decreases, an adjustment will be made at the end of the contract.
Get a Free Consultation for San Francisco Contractor Surety Bonds from a Trusted California Surety Agency
At CSBA, we offer free, no-obligation consultations for contractor surety bonds in San Francisco and across California. Our internal underwriters streamline the process to help you secure the surety bonds you need and guide you on personalized strategies to increase your bonding capacity to grow your business.
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