One of the first questions developers and property owners ask is, “How much will this grading bond cost?” It’s a crucial question, but the answer is more complex than a simple flat fee. The premium for a grading bond is a percentage of the total bond amount, and that percentage can vary based on several key factors.
Understanding what sureties look for is the best way to manage your costs and secure the most favorable terms for your project.
The Typical Premium Range
For most projects, you can expect the premium to range from 1% to 5% of the total bond amount.
This premium is not a “one-and-done” payment for the life of the project. Typically, the initial premium covers a 24-month term. If your project extends beyond that period, the bond will renew annually, often at half the initial cost, until the public agency officially releases the bond.
Key Factors That Determine Your Rate
Surety companies are required to file their rates with the state’s department of insurance, so the rate structures are set. That said, there are things you can do to help ensure you qualify at the best rate structure available. Here’s what sureties focus on:
- Bond Amount
The size of the bond (which is usually determined by an engineer’s estimate) is a major factor. Larger bond amounts, especially those over $500,000, often qualify for better, tiered rates. For example, a $1 million bond won’t necessarily cost twice the premium of a $500,000 bond; the rate itself often gets cheaper as the bond amount increases.
- Financial Strength
For larger bonds (e.g., over $1 million), the surety will put a heavy emphasis on your financial strength. They will want to see financial statements and be confident that you have the capital and resources to complete a project of that magnitude.
- Credit History
Your credit score is always a factor. For smaller bonds (under $50,000), good credit is often the primary qualifier. While a poor credit score with negative marks like a bankruptcy can disqualify you, there isn’t a significant premium difference between an average and an excellent scores.
Common Questions About Cost
No. Whether your project is slated to take two months or 18 months, the initial premium is paid upfront for the full term (usually 24 months).
In most cases, no. However, if your bond requires collateral (like a piece of property), you may face additional fees for things like appraisal reports or filing fees.
Yes. If your project scope changes, the public agency (city or county) can request an increase or decrease in the bond amount. This is formally handled with a "bond rider," which adjusts the bond's penal sum, and your premium would be adjusted accordingly. There could be limitations or exclusions depending on the cause of change during the initial term.
How a Specialist Can Help
Navigating the surety market to get the best rate can be difficult. This is where working with a specialist like CSBA adds tangible value.
We know what sureties look for and how to present your financial picture in the best light. If you have a large project with good financials and credit, you should be qualifying for a better, tiered rate. We know how to navigate those waters and push for the best terms, ensuring you’re not overpaying and aren’t burdened with unnecessary requests from agents who may not be equipped for your specific type of bond.
Get a grading bond quote now
We want to know more about how we can help you get a grading bond for your next excavation or earthmoving project.
