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.

Your Guide to Apply for a Bond

Obtaining a bond is one of the most important parts of the construction business, and while you can work with a surety agent to help guide you through the process, you should know the steps involved in getting a bond.

Below you’ll find what to expect when applying for a bond as well as information regarding common mistakes contractors make in the bonding application process and frequently asked questions.

How to Apply for a Bond

STEP 1

Select a bond agency to work with:

Before choosing a bonding agency to partner with, you want to ensure they have the experience required for your unique needs. Many insurance agents just dabble in surety bonds, so you want to find out just how much of the agent’s business is construction bonds. Like most things, the more the agent focuses on bid, performance and payment bonds for California contractors, the more expertise they will have to offer you.

STEP 1

STEP 2

Have an in-depth conversation regarding your business and bonding needs:

This can be a red flag of sorts if the surety agent doesn’t take the time to get to know your business and what it needs to grow. As a contractor, you need to insist on having this conversation with a surety agent as it helps prepare for bonding requirements down the road and preparing the correct documentation. The last thing you want is a last-minute hiccup while getting bonded and missing out on a construction bid.

STEP 2

STEP 3

Gathering preliminary financial information:

This step is where surety companies determine if you have the experience and financial capability to complete the project you’re getting a bond for. Depending on the size of the bond, underwriters will go about this step a little differently. For example, projects over $750,000 require internally prepared financial statements from the company while bonds over $2-3 million will generally require financial statements prepared by a CPA.

STEP 3

STEP 4

Choosing the Surety

Your surety agent will choose which company best fits your needs before submitting the prepared information. This step is often performed by the surety agency’s internal underwriting team, if they have them, to make sure the company issuing the bond is appropriate for your contractor business. You’ll want to find out how many surety companies the agent represents, because the more sureties they have access to, the more options they can find that fits your specific needs.

STEP 4

STEP 5

Finalize

Once the necessary paperwork is prepared, the last step is submitting the information to the surety company and waiting for their decision. Depending on the size and scope of the bid, you shouldn’t have to wait more than 2 weeks. If the surety agency you’re working with has done their homework, the surety company is unlikely to request much additional information and hold up the process. Once your bond program is finalized, the surety agent should be able to communicate your specific per project and total bonding capacity that you have been approved for.

STEP 5

Common Mistakes to Watch Out for as a Contractor

There are a few missteps contractors can make that can damage your ability to get bonded or extend the bonding application process a great deal. Be sure you don’t engage in the below or you’re likely to have a hard road ahead of you:

Not Using a Surety Specialist
- It’s important to work with an experienced surety agent as they have relationships with the companies that issue the bonds you’re after. They are well-versed in this side of the contractor business and can alert you to what you need in order to reach future goals. The knowledge of a surety agent cannot be overstated, they’re an integral part of ensuring the bonding process goes smoothly.
Waiting to Begin
- It can take time to get certain pieces in place like a CPA prepared financial statement or a bank line of credit, so it’s important to know if these things are required in advance. Also, a bond company may come back requesting more information before moving forward. If the deadline on a bid is fast approaching, you don’t want to be held up by the bonding process.
Dismissing a Surety Agent’s Professional Advice
- Just as you’re intimately familiar with your industry, so too is the surety agent. It’s important to be open to their advice as they’re experienced with the road ahead and how best to achieve your business goals. You don’t have to take all their advice, but it’s important to listen to their opinion as it relates to the bonding process.

Common Questions Contractors Have About Bonding

Are there differences in the bond application process between bid, performance, and payment bonds?
- No, there is no meaningful difference in the bond application process for the different kinds of surety bonds.
Are there differences between a contractor and subcontractor for the bonding application process?
- During the bonding process, emphasis is placed on understanding the nature of your business. For example, subcontractors may require more cash because of their labor than a general contractor. On the other hand, equipment might be a bigger factor for an engineering contractor. Other than understanding those aspects of your business, there is no difference in the steps.
How long does the bonding process take with an insurance agent vs a surety agent?
- Getting bonded can take a much longer time with an insurance agent as they don’t specialize in construction bonds. They are more likely to request the wrong information or ask questions that aren’t relevant to the process. Typically, the process should take less than 2 weeks and sometimes can be as fast as a couple days.

The CSBA Difference

We at CSBA have a unique process when getting contractors bonded. We approach working with contractors as a partnership rather than us telling you what to do or vice versa. We’re both professionals in our field and benefit from your success.

Evaluate

Initial call to gain a solid understanding of your business and the opportunities and challenges you face. The best way for us to represent you is to get to know you – inside and out.

Underwrite

Unlike many agencies, CSBA has in-house underwriters that will review your background and financial information prior to talking with a surety. We look for untapped opportunities to improve your bond program and make recommendations on the best approach to solving your needs.

Align

CSBA has over 35 surety companies. That’s more than 99% of agents in the marketplace do. We use our in-depth alignment process to make sure we set you up with the surety that can best meet your specific needs based on 13 factors, such as your size, type of work, bonding needs, financial strength, and underwriter experience.

You’ll love partnering with CSBA if you:

Always Strive to Improve. We’re all about helping our customers reach their potential through sharing best practices in construction, surety, and overall business.
Are Looking for a Real Partner. Not someone that will just tell you what you want to hear, but someone that helps you overcome challenges and position yourself to capitalize on opportunities.
Love to Win. Whether it is winning a specific bid, beating your competition, or being the hands-down best in your industry, we want to help you achieve your goals.

About The Author

Dan Huckabay

President

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