City of San Jose Contractor Surety Bonds
Surety Bonds for Projects in the City of San Jose
A surety bond is a type of financial guarantee that public agencies often require of contractors when they engage them for construction projects. The bond protects the public project owners in the event a contractor fails to meet their contractual obligations. If the awarded contractor defaults—whether by not starting the work, not completing it, or failing to meet requirements—the surety bond ensures the project owner is financially compensated for resulting losses or delays.
A surety bond is an agreement between three parties: the contractor (principal), the project owner (obligee), and the surety. The project owner requires a surety bond from the contractor to proceed with the project. The contractor secures one with a state-authorized surety company through a surety agent. The surety company then guarantees to the project owner through the bond that the contractor is capable of taking on the work required. If the contractor fails, the bond protects the project owner from financial loss.
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Types of Surety Bonds
Bid Bonds
When bidding for public projects in the City of San Jose, contractors are typically required to submit a bid bond. A bid bond guarantees that if the contractor is awarded the project, the contractor will enter into the agreement and secure the necessary performance and payment (P&P) bonds.
Performance Bonds
The performance bond is required at the time the contract is awarded, and it guarantees that the contractor will complete the contract per the terms and conditions specified.
Payment Bonds
The payment bond is also issued at the time the contract is awarded. It provides assurance that all laborers, subcontractors, and material suppliers who are involved with the project will be paid fully.
City of San Jose Surety Bond
Requirements for Contractors
According to the San Jose City Municipal Code 27.4, public work contracts that exceed $25,000 require a payment bond and a performance bond that are each 100% equal to the total contract amount. The bonds must be signed by the contractor, backed by a qualified surety licensed in California, and in compliance with sections 9550 to 9566 of the California Civil Code. Once the bonds are submitted and approved, construction can begin.
In the cases where bonds aren’t automatically required, the City Director can still require them from the contractor if they believe it’s in the city’s best interest, along with other types of bonds specific to the project.
While there typically isn’t a fee associated with the bid bond, it’s important for a contractor to know the premium rate for the performance and payment bonds so that the cost can be factored into their bid.
Cost of Surety Bonds in San Jose, California
Bond rates can vary by contractor and project. The financial strength and experience of a contractor can help them qualify for better rates. Key factors for lower rates can include the following:
Bond Size
The premium rate typically tiers down as the contract amount gets larger.
Contractor’s Credit and Financial Health
Sureties want to see financially stable companies with strong credit profiles.
Type of Financial Statements Submitted
Contractors generally qualify for better rates when they submit CPA-prepared statements, as the outside certification provides more credibility than internally prepared financials.
Past Project Performance
A proven track record of projects completed on time and within budget can help contractors qualify for preferred rates.
Volume of Bonded Work
Contractors who do a lot of bonded work are more likely to have a close relationship with their agent and surety, providing frequent financial updates and an open line of communication. This helps with qualifying for lower rates.
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How to Apply for San Jose Surety Bonds with a State-Authorized Provider
Step 1: Choose the Right Surety Agent
Work with an agent who is appointed by state-authorized surety companies licensed in California.
Step 2: Know the Submission Process Based on Bond Size
Here is what you can expect on your application journey based on the size of the bond you need.
- For Bonds Under $1,000,000: A simple application with approval based on personal credit score and prior experience.
- For Bonds Between $1,000,000 – $2,500,000: In addition to an application, contractors requiring bonds of this size must provide some financial information, including internal company financial statements and personal financial statements of the owners.
- For Bonds Over $2,500,000: Typically, when contractors start bonding over $2,500,000, sureties want to see CPA-prepared financial statements, preferably from a CPA experienced in construction accounting. The submission process requires more detailed information and includes a more in-depth questionnaire.
Step 3: Get Bonded and Start Your Project
Once approved, your agent will prepare the bond so you can submit it with your bid or the contract documents and move on without worrying about the bond requirement.
Why Contractors Trust CSBA for
Surety Bonds in the City of San Jose
Since 1984, CSBA has been committed to helping contractors across California secure the surety bonds they need to compete and grow. We’ve partnered with more than 300 construction firms, guiding them through everything from their first public works bid to managing multimillion-dollar projects.
With CSBA, you receive step-by-step support from experienced surety professionals who understand what it takes to position your business for bond approval.
FAQs
How Long are Bid Bonds Good for?
The validity of a bid bond depends on the requirements set by the project owner. Most public construction projects in California, including those in San Jose, require bid bonds to remain valid for 90 to 120 days after bid submission. If the project award is delayed, the owner may request a bond extension. Always review the bid specifications carefully to ensure compliance and avoid disqualification.
How Long are Performance Bonds Good for?
A performance bond remains in effect until the construction project is completed according to the terms of the contract. This includes the warranty period that the contractor is obligated to.
How Long are Payment Bonds Good for?
Payment bonds remain active until all subcontractors, suppliers, and laborers have been paid and the statutory payment period has passed. These bonds are essential in public works projects to protect against non-payment issues and remain enforceable for a specific period under California law, even after project completion.
Are Performance and Payment Bonds Paid Monthly?
No, performance and payment bonds are not paid on a monthly basis. The full premium is paid at the time the bond is issued. The premium is based on the contract value.
Get a Free Consultation for San Jose Contractor Surety Bonds from CSBA Today
At CSBA, we can help make sense of the bond requirements on your projects with the City of San Jose and will guide you through the bond application process. Request your free consultation today to move forward with confidence tomorrow.
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