What are the Types of Surety bonds?

The three most common types of surety bonds are: Bid Bonds Performance Bonds Payment Bonds

Are Surety Bonds paid monthly?

No. You don't pay month-to-month for sureties. When you are quoted a price for a surety bond, you make a one-time payment.

How do I apply for a surety bond?

Applying for a surety bond, no matter the sort of bond, is to contact a surety agency. For instance, you can reach CSBA here to get started on obtaining your surety bond.

What is a payment bond?

A payment bond ensures that all of a contractor’s laborers, subcontractors, and suppliers are paid on a particular project.

Who requires payment bonds?

Payment bonds are required on almost all public projects. General contractors sometimes require them of their subcontractors, and occasionally private owners will require them.

Who pays for a payment bond?

The contractor, or principal, purchases the bond and pays for it.

Do Payment bonds expire?

Payment bonds expire after the project is completed and statutory timeframe have lapsed.

What is the difference between a surety bond and a payment bond?

A payment bond is a type of surety bond. The only real difference is the qualifying term, in this case, it's "payment" and only notes what sort of surety bond it is.

What does a performance bond cover?

The performance bond covers the owner of the project against losses if the contractor fails to deliver on the project within the contractual provisions.

How long does a performance bond last?

Since performance bonds guarantee the completion of the contract, they last until the project is finished along with any required warranty period included in the agreement.

When can you release a performance bond?

Usually, a performance bond is released when the project is completed, though some public projects stipulate that a contractor gives a warranty following completion that the performance bond covers.

What is the difference between a performance and a payment bond?

We have a detailed article that explains the differences here , but the short answer is that the performance bond secures the contractor's promise to complete a job within the terms and conditions outlined at the agreed price while the payment bond protects subcontractors, vendors, and laborers against nonpayment.

What is the difference between a bid bond and a performance bond?

Bid bonds are required when contractors bid a project and guarantees if they are low bidder, they will enter into the contract and provide any required performance and payment bonds. Performance bonds guarantee the actual performance of the work to be completed by the contractor according to the terms of the agreement. What happens to a bid bond after a contract is signed? The bid bond is replaced by a performance bond if the bid is accepted and the contractor enters into a contract with the owner or general contractor.

Grading Bonds

What is a Grading Bond?

A grading bond, sometimes referred to as a grading permit bond, can be a permit requirement for privately owned construction projects. When a project owner needs to move earth because of reshaping land at a construction site, they need a grading permit to do it legally, which is only approved if the bond has been issued.

The bond applies to grading projects and excavations that involve a specific amount of cubic yards, determined by local cities and counties, and varies between them. Essentially, the bond guarantees that the project owner will comply with the grading plans that were approved and all relevant regulations.

Who Provides Grading Bonds?

Grading bonds are provided by surety companies or bond companies, which are technically insurance companies. Not all insurance companies provide grading bonds. It is a very niche product and accounts for less than 1% of the overall insurance industry.

Almost all surety companies work through agents or brokers like CSBA. Many agents don’t provide grading bonds and instead focus more generally on insurance products like general liability and workers’ compensation coverages.

There are some agents that specialize in surety bonds and a few like CSBA that exclusively provide bonds.

How Much Does a Grading Bond Cost?

Surety companies charge a premium to issue grading bonds, which is a percentage of the overall bond amount. When a project owner needs a grading permit, the cost of the required bond depends on several factors:

The applicant’s creditworthiness
The bond amount
Terms required by the city

There may be other factors applied due to the variations between cities, but generally, the premium tiers down the higher the bond amount.

Premiums are generally charged for an initial term of 2 years and then annually thereafter until the work is complete and the grading bond is released by the city or county.

FAQs

Why Do I Need a Grading Bond?

A grading bond helps ensure that project owners excavate and move earth according to the applicable City or County laws and the approved plans and that the work is done within compliance of the grading permit issued.

Who Needs a Grading Bond?

Grading bonds are required for property owners of private projects, rather than government or tax-payer-funded construction.

What Information is Required for a Grading Permit Surety Bond?

Grading permit bonds are issued on behalf of the project owner after the project owner successfully completes the application process and is approved by the surety company. Generally, the bond application requires the following:

Engineer’s estimates for the work
City or County’s bond form
Completed application (Contact a surety agent for the application.)
Financial information for the owner of the property applying for the grading permit. The financial information shows creditworthiness and needs to demonstrate that the owner has the ability to fund grading work through completion.

Does a Grading Permit Bond Expire?

Unlike other types of bonds, a grading permit bond does not expire. This is important to understand because even if a project is sold, the bond’s premium will automatically renew for the person it was issued on behalf of. The bond must be released by the City or County, which only occurs if the City or County has provided a letter officially releasing the bond.

The letter is issued after the construction is complete and inspected by a Grading Inspector. Without this letter from the City or County, the premium will automatically renew until received by the surety company. This means that the person who obtained the bond is responsible for the renewal premium and still liable for the bond until the surety receives that letter.

Does it Matter Where I get My Grading Bond?

Surety bonds for grading projects require specialized understanding. While contractors and project owners may be able to have a grading bond issued via an insurance agent, it isn’t usually in their best interest to do so. Insurance agents often lack the industry expertise that can make for a smoother bonding process and the relationships with surety companies that can grant access to special programs.

Using an insurance agent rather than a surety specialist is somewhat akin to going to your general physician to treat a heart problem rather than a cardiologist. When you’re dealing with something as important and costly as improving or developing a property, you want to make sure you have an expert by your side.

If you require a grading permit surety bond, don’t hesitate to contact us. Discover how easy the bonding process can be with dedicated experts guiding you through it.

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We specialize in providing grading permit bonds for developers and property owners for projects like residential homes, apartments, shopping centers, and gas stations.

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