Sacramento City & County Payment and Performance Bonds
What Are Payment and Performance Bonds?
Payment and Performance bonds required in the City and County of Sacramento are two distinct yet often bundled surety agreements that are typically required for public works construction projects.
* If the contractor defaults—for instance, by failing to complete the project to the agreed standards or abandoning the work—the performance bond provides financial recourse to the project owner. This bond typically replaces a bid bond once a contract is awarded.
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How Performance & Payment Bonds Work in Sacramento
Performance and Payment bonds in Sacramento, for both City and County projects, are a three-party agreement:
The Principal
The contractor that purchases the bond and is obligated to perform the work and pay its suppliers and laborers.
The Obligee
The entity requiring the bond, typically the project owner (e.g., the City of Sacramento or Sacramento County). The obligee is the beneficiary of the bond's protection.
The Surety
The insurance or surety company that issues the bond, guaranteeing to the obligee that the principal will meet its contractual obligations.
If a claim is made on the bond and the surety pays out, the surety has the right to recover all costs and expenses from the contractor (the principal). This highlights the fact that it’s ultimately the contractor’s responsibility to fulfill the contract obligations even if things don’t go the way they intended.
Key Performance & Payment Bond (P&P Bond) Requirements in Sacramento (City & County)
Contractors in Sacramento must navigate a framework of state, city, and county regulations for P&P bonds.
State-Level Requirements
California law, under the "Little Miller Act," sets baseline requirements. Generally, payment bonds are required for public works contracts exceeding $25,000. Performance bonds are also standard for public projects, often needing to cover at least 50% to 100% of the contract price, depending on the project's nature and value. All bonds must be issued by a surety company licensed and approved by the state.
Sacramento City Specifications
According to the City of Sacramento's standard specifications, the successful bidder shall provide Performance and Bonds to the City, each for a sum equal to one hundred percent (100%) of the Contract Price. Each Bond shall be executed by a surety insurer admitted and duly authorized to transact business in the State of California. If the Contract Price is increased by Change Order, Contractor shall increase the Performance and/or Payment Bond amount(s) if and to the extent required by the Engineer.
Notwithstanding the foregoing, for any Contract awarded for a Contract Price of $25,000.00 or less, no Performance Bond or Payment Bond is required unless specifically required in the Special Provisions, except as otherwise required by any laws or regulations.
*Verify any requirements with the federal, state, or local agency directly and read our disclaimer.
Understanding the Cost of Sacramento Performance & Payment Bonds
The cost of performance & payment bonds for Sacramento projects is a percentage of the total contract price. Here are some factors that can make a difference in the premium rate:
- Contract Amount: The size of the performance & payment bonds needed.
- Financial Strength: Strong credit scores and overall financial health of the company and its owners typically result in lower premium rates.
- Financial Statements: CPA-prepared financial statements (compiled, reviewed or audited) often lead to more favorable rates than internally prepared statements, especially for larger bonds.
- Past Project Performance: A solid track record of successfully completing similar projects profitably can lower premium rates.
- Bonding History: Contractors with more experience in successfully managing bonded work may receive lower rates.
The premium covers both the performance bond and payment bond when they are required at the same time. While rates vary, an industry benchmark might be around 0.5%-3% of the contract amount.
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Why Contractors Trust CSBA for Sacramento Performance & Payment Bonds
Choosing the right surety partner is vital for success in Sacramento’s construction market if you’re interested in doing public work that requires bonding. While general insurance agents might offer bonds, surety-only specialists like CSBA provide distinct advantages:
- Specialized Expertise: CSBA focuses exclusively on surety bonds, possessing in-depth knowledge of the industry, unlike general insurance agents who handle bonds as a secondary product.
- Experience & Stability: With decades of experience since 1984, CSBA has assisted countless contractors, from startups to large firms, in securing the bonds they need.
- Streamlined Process & Competitive Rates: Our focused expertise and strong surety market relationships enable us to offer quick turnarounds and competitive premium rates.
- Personalized Guidance: Our experienced underwriters work closely with you, understanding your company’s financial status and strengths to guide you in meeting performance and payment bond requirements and building your bonding capacity for future growth.
Get Your Sacramento Performance & Payment Bonds with CSBA
Successfully navigating the bonding requirements in the City and County of Sacramento requires a partner with specialized knowledge and a commitment to your success. Choose CSBA, California’s leading surety-only specialists, to secure your performance and payment bonds efficiently and confidently.
Sacramento Performance & Payment Bonds
(P&P Bonds) FAQs
Who generally needs Performance & Payment Bonds in the City and County of Sacramento?
P&P bonds are commonly required for public works projects undertaken for the City of Sacramento or Sacramento County. They are also mandated by the Miller Act for federal construction projects over $100,000. Additionally, private project owners can require them.
What is the main difference between a Performance Bond and a Payment Bond in Sacramento?
A Performance Bond guarantees the project owner that the contractor will complete the project according to the contract’s terms. A Payment Bond guarantees that the contractor will pay the subcontractors, laborers, and material suppliers on the project.
What happens if a contractor defaults on their obligations?
If a contractor fails to meet their contractual duties (e.g., not completing a project under a performance bond, or non-payment to subcontractors under a payment bond), a claim can be filed against the bond. The surety company investigates the claim and, if valid, takes steps to resolve the issue. This could involve providing funds to the obligee, arranging for another contractor to complete the project, or ensuring that unpaid parties receive the amount they are owed.
How long are Sacramento Performance & Payment Bonds typically valid?
P&P bonds are valid for the entire duration of the construction project. Coverage extends through any subsequent warranty periods or statutory claim periods as defined by the contract and relevant California laws.
Are Performance & Payment Bonds Necessary?
These P&P bonds are a standard requirement for many public works projects in the city and counties of Sacramento City and County. Furthermore, the federal Miller Act mandates both payment and performance bonds for most federal construction projects exceeding $100,000. It’s becoming more common for private project owners to require P&P bonds as well to mitigate their risks.
What happens if a claim is filed on a Sacramento P&P Bond?
If a claim is made (e.g., by the project owner for default, or by a subcontractor for non-payment), the surety company investigates. If the claim is valid, the surety fulfills its obligation. The surety then seeks reimbursement from the contractor for all costs incurred.
What are typical P&P bond requirements for Sacramento County projects?
Sacramento County projects adhere to the California Public Contract Code. Specific bond requirements, including amounts and types (e.g., performance, payment, maintenance), are often detailed in individual project contracts or specific County ordinances.
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