There’s not a business around that doesn’t want to get ahead. However, it takes having the proper tools to do so. If your company is interested in bidding on both construction and private contracts, you’ll need a surety performance bond. Any federal or state-financed construction project over $150K requires this type of bond. It doesn’t stop there either. Even commercial projects for manufacturing and service as well as supply work require a surety bond. It’s worth getting if you want to continue to move your business forward. However, it’s a good idea to get a full understanding of what a surety performance bond is and why it’s a good idea to have one.
At NFP Surety, we have made the performance bond application simple and easy. Simply contact our office, and we will make sure you are properly bonded and insured. We only send our performance bond applications to top-rated insurance carriers, such as Merchants Bonding Company, Philadelphia, Travelers Surety, and the Hartford Bonding.
What is a Performance Bond?
A performance bond is also considered a contract bond. It is issued by a bank or an insurance company as a guarantee for satisfactory completion of a project by a contractor. The bank or the insurance company acts as the surety. Securing a performance bond can cost 1% or more of the contract value. However, the benefits far outweigh the cost. A performance bond is issued to one party on the contract in the event that the other party fails to meet the terms and obligations outlined in the contract. This bond serves as a guarantee. The bond pays the obligee if the principle party fails to meet the obligations outlined in the contract.
How Do You Secure a Performance Bond?
You must apply for a performance bond. Your application must include a balance sheet, income statement, cash flow statement, complete notes, and disclosures as well as work schedules. You must select the state you want to be bonded in and choose the type and the amount of the bond you are seeking. In order to secure the bond, you are required to pay anywhere from 1 to 15% of the total bond amount. The rate can be determined by your credit score. However, high-risk or construction bonds can cost as much as 10% of the value of the bond. However, they bring peace of mind to any project you’re involved with. Contact us, we’ll help you get started.
Who Needs a Performance Bond?
The Miller Act, created in 1935, is the current law that requires performance bonds for all federal construction projects. If you are a project owner, general contractor or sub-contractor you may tackle a project that requires a performance bond as a guarantee. However, it’s not needed unless someone requests one, however, some business owners attain them to build credibility and trust. A surety performance bond has three important components; the person performing the service is the principal, the benefactor of the service is the obligee, and the bank or insurance company that guarantees that the principal will fulfill the contract is the surety. Surety performance bonds function more like credit than insurance. These bonds are also mandatory for private sectors as well, if they are using general contractors.
What Industries Require Performance Bonds?
Performance bonds are used predominately in the construction and real estate industry for real property construction and development. However, they are used in other industries as well. For example, the seller of a commodity might request a performance bond from a buyer. Plus, performance bonds are often required for those in the service industry. However, the sole purpose of this type of bond is to provide protection from any breach of a contract that could come about due to low-quality work, incomplete work, bankruptcy, insolvency, and any other conditions that fail to meet the terms of the contract.
Many companies outsource work and have for numerous years. Businesses from the private sector may wish to respond to a proposal or bid for a public sector job, the government, or municipality. The requirement of a performance bond will reduce the number of unprepared or unqualified people or companies from being able to take these jobs that may be large in scope and require revenue and experience. Service bonds generally require anywhere from 1-3% of the bond amount. Many industries require the use of performance bonds to ensure that the terms of a contract or met, or compensated if they aren’t met. CHUBB Surety, Western National Surety, and Liberty Mutual Group, are a few of the other bonding companies we work with.
Service bonds create credibility and protect many different business interests. They can be a wise investment and are actually a requirement in many industries, particularly construction. Explore all your options and secure a performance bond for your next big project. It’s a move that will build confidence in the project and act as an insurance policy for the contractual terms of the contract. Furthermore, it’s a wise move to protect everyone’s business interests by securing a performance bond that will pay for the completion of the project or hire another company to complete the project. Plus, these bonds protect the owner of the project. Invest in a prosperous future for your business. Secure a surety performance bond for your next big project. Fill out our free performance bond application today, and let us do the shopping for you! NFP Surety is here for you.