Curious about subdivision bonds? I was once too… These are also known as a construction completion bond, plats or performance bonds, If you qualify for one, the surety company assumes the risk for completion of government-required community improvements associated with your development. This blog will help you understand the reason behind getting a subdivision bond for your new development or building project. Armed with this knowledge, you’ll be better equipped to qualify for a bond and get the best terms from your surety company.
Subdivision Bonds: Who Needs Them?
If you’re planning a new construction project, subdivision sureties should be on your radar. As a construction company, developer or landowner, you will need to post a subdivision surety bond before breaking ground or recording the parcel map. They assure the local government that you:
- Possess financial resources to pay for all required community improvements to support your development.
- Complete local community improvements on time. Necessary community infrastructure enhancements might include the addition of, or changes to curbs, sidewalks, roadways and/or sewers.
- Guarantee maintenance on workmanship and/or materials for at least a year.
Subdivision bond success tip: Before bidding on the job, or preparing an estimate, be sure to research the potential cost with a specialized bonding company. This way, you can incorporate the premium into the total bid or project cost.
How Do They Work?
They are a type of contract surety that you post in order to obtain building permits and begin construction of a new building or development. (Site improvement bonds are similar, but intended for existing structures or developments.) The subdivision kind of bond guarantees to your local government (municipal, county, or state) that you will properly complete public improvements required to support your new development. Without a bond from your surety company, you would need to tie up your own capital, cash or credit (for the duration, plus the guaranteed maintenance period) to guarantee all work and maintenance is properly completed. When you partner with a bonding company, you get a bond for the full coverage amount necessary, but you only pay a premium of 1 to 10 percent for the coverage.
How Much Coverage Do I Need? How Can I Qualify for a Good Rate?
The rate and terms set by your chosen surety company depend upon the level of risk they assume as guarantors of the bond. Choose an experienced bond issuing company that offers subdivision bonds (not all do). A dedicated bonding agency will work hard to get you approved–and set a fair premium rate to help your project succeed. (Surety by NFP can help with all your bonding needs)
Your premium cost is based upon factors including:
- Contract amount or project cost
- Scope of the project or improvements
- Source of your project’s funding
- Type of project/work you will perform
- Work location (state, city, etc.)
- Your personal credit score (as the principal or business owner)
- Your years of experience, years in business and reputation
- The documented financial health of your business (based upon your financial reports)
- And more
Advantages of a completion bond
Here are the top benefits of a subdivision/construction completion bond:
- Improves cash flow. Enables you to begin selling properties within the subdivision before government-mandated community improvements are completed.
- Helps you pre-qualify (through the bond underwriting, due diligence process).
- It provides unsecured credit. Bonds won’t tie-up capital or reduce any available credit that you may have.
- Eases your stress. Our claims division helps resolve any issues with the local municipal authority. Without the bond, you might forfeit any security you would have provided as a guarantee to the local municipality.
- It lowers your risk. Typically covers you completely (100 percent coverage to guarantee your performance, payment and the full year maintenance commitment you made to the government). If you as the developer should default, the full bond amount is available to complete the community improvement work on your contract.
Construction Completion Bond
They are very important in the construction industry. In most states, they are required, and if they are not, it is a good idea to get a construction completion bond to stay ahead of your competition.
How to Get Bonded
Your new project represents a big investment of your time, money and reputation. Help ensure your success with the right bond from the experts at Surety by NFP. As the largest bonding agency in the US, we can underwrite a subdivision bond that perfectly fits your needs. Contact us at NFPSurety.com today.