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.
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.
Grading bonds are required for property owners of private projects, rather than government or tax-payer-funded construction.
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.
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.
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.
Get a grading bond quote now
We specialize in providing grading permit bonds for developers and property owners for projects like residential homes, apartments, shopping centers, and gas stations.
Fill out the form and one of our local expert grading bond agents will be in touch with you shortly.