You’ll often see businesses advertise that they are “Bonded”, but what does this really mean? When it comes down to it, there are a few different definitions and ways a company can be considered “Bonded”.

The most common type of bond a business has is usually some sort of a License Bond (also referred to as a Commercial Bond). These bonds typically have smaller values attached to them in the range of $5,000 – $50,000. However, Contract Bonds (which include Bid Bonds, Performance Bonds, etc.) are the type of bonds that enable a company to perform bonded works or bid on tenders requiring bonding.

Contract Bonds are facilitated by what we call a Bond Facility which we delve into next.

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A Bond Facility is an annual program that enables you to provide the bonds that your business needs. Think of it like a gym membership – only, instead of having access to a gym, you have the opportunity to provide the required bonds when they’re needed. Once a Bond Facility is set-up, it is fairly inexpensive to maintain; however, setting one up does require a significant amount of information with a similar process to establishing a banking relationship.

As a Surety Bond Broker, we shop your business’ financial position to various Surety Companies to ensure you’re able to provide bonds for the projects and contracts you need them for at the best rates available.

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Fidelity bonds protect businesses from employee dishonesty and/or damage to a client's property. Fidelity bonds are often purchased as part of an insurance package. Contract bonds, on the other hand, are a type of surety bond and protect your clients from non-completion of a contract.

Surety bonds in contracting act somewhat as a promise between the contractor and both the consumer and public entity. For a consumer, License and Permit bonds guarantee a general contractor will do business compliant with the rules of his or her specific contractor license. They also protect the public from fraudulent practices and ensure a contractor is operating their business according to applicable codes and regulations.

A performance and payment bond is also often required for public work contracts (any job paid for in part or in whole out of public funds) due to the Miller Act. This Act requires contractors to provide performance and payment bonds that guarantee performance of contractual duties, and payment to subcontractors and suppliers that are involved in a bonded, public contract.

• Performance bonds favor the project owner and guarantee that all contract requirements are met. If the contractor fails to complete the required job, the bond can provide compensation to a project owner.
• Bid bonds prequalify contractors to bid for jobs. They protect the project owner, ensuring the contractor will honor the bid requirements if awarded the job.
• Payment bonds ensure all laborers working under the contractor (including suppliers and subcontractors) will be paid for labor and materials.
• License and Permit bonds can favor either a homeowner or project owner guaranteeing a contractor does business compliant with the rules of his or her specific contractor license and protect the public from fraudulent practices thus ensuring a contractor is operating their business according to applicable codes and regulations.
• Maintenance bonds offer protection in the event of faulty or defective materials, even after a project’s completion for a specified time period (similar to a warranty).

All in all, construction contractor bonds are capable of covering a wide range of different subjects. In order to figure out precisely what will be covered, it is essential to analyze the specific type of bond in question. Each bond is unique and the coverage will vary significantly. By knowing what needs coverage, you will easily be able to find a bond, which will provide you with the peace of mind you demand and deserve.

The annual cost of a Bond Facility will vary depending on what we call the “Three C’s” of Surety – these are:

• Character: this includes the experience of key personnel within your business and history of completed contracts.
• Capacity: this references the size of projects that your company would be able to complete (enough employees, etc.).
• Capital: an evaluation of the funds available to bridge payments during a contract duration including operating lines, liquidity of assets, and more.

These factors will all play a role in not only the cost of your Bond Facility, but the limits of bond values you are able to provide. Essentially, the stronger you and your business are financially and historically in your field, the better. A good estimate for the annual cost of the ability to provide bonds is about $1,500. Final Bonds such as Performance or L&M bonds are an additional cost depending on contract size and the rate determined from your business application.

As someone, who works within the construction industry, you should wholeheartedly understand the number of problems that could arise. At any moment, a small error could be made and it could result in very detrimental and incredibly costly damages. This is why it is so important to invest in construction bonds. Of course many people are not entirely familiar with these bonds and what they cover. Within this guide, you’ll be able to find out.