Your Payment and Performance Bonds Broker
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Payment & Performance Bonds – We Are Your Bond Experts.
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We are the nation’s leading provider of performance bonds and bid bonds. Our expertise spans the entire range of bonds and we’ve worked extremely hard over the years to develop deep relationships so that we can offer you the absolutely best bond rate available. We work with you to present the best case scenario to the surety bond company. Then, we utilize our deep relationships with those companies to get the right bond suited for your specific needs.
How are we able to do this? Through a lot of hard work.
That’s how we’re successful. That’s why we’re the best. Hard work. Dedication. Experience. We’re the EXPERTS when it comes to bonds. Apply today by clicking the Apply Online box below:
Here are some of the most Frequently Asked Questions that we get about Performance Bond
What does it cost? Can I get one with bad credit?
The cost can vary widely from company-to-company, but some general guidelines are that the rate is 3% for all bonds that are $250,000 and less. For bonds over this amount, we use a graduated scale for the bond rate. In general, most bonds are going to cost between 0.75%-3%. For companies with bad credit, the bond rate can be higher as there is more work involved to get one issued (and that work is much preferred to an expensive bank guarantee). We work with you to present your financials in the best light to the surety so that you can get on with your work.
What is a Payment Bond?
Payment bonds are a subset of surety bonds. These are typically required on construction projects. They provide assurance that the contractor (also known as the obligee) will pay all laborers, material supplier and contractors. Thus, the owner of the property knows that there will not be a mechanic’s lien placed on the property (which would interfere with their ability to market the property once the project was completed).
What is the difference between a payment bond and performance bond?
This may be easiest to explain with a good example.
Let’s assume that Gotham hires Falcone Contracting as the general contractor to build a mental hospital (and let’s call that facility, um, Arkham Asylum). Falcone Contracting then hires several other subcontractors to work on Arkham, such as Joker Construction, Penguin Plumbing and Supply, and Mr. Freeze’s HVAC.
Let’s further assume that after constructing half of Arkham, Falcon Contracting goes out of business, leaving the other half to be finished later. Further, let’s assume that 20% of what was actually done was defective (10% of the total). Finally, let’s assume that Falcone Contracting did not pay Joker, Penguin for their work at all, and only paid Mr. Freeze for his labor, but not his supplies.
The performance bond would protect the owner (in this case, the city of Gotham) from the non-performance of Falcone Contracting, as well as the defective work of Falcone. Thus, the surety would have to find someone who would fix the 10% completed as well as complete the remaining 50% of the project (or pay damages to Gotham in the amount of the bond). However, the bond would not provide any protection for Joker, Penguin or Mr. Freeze. They would be forced to put a mechanic’s lien on Arkham.
Fortunately, Gotham was smart about this. Not only did they require Falcone to get a Performance Bond, but they also required them to get a Payment Bond. Thus, the surety company now has to pay Joker Construction, Penguin Plumbing and Supply in their entirety, and Mr. Freeze’s HVAC for the materials that they purchased.
Here is a Owner’s checklist for getting bonded.
How are Claims Made?
These are a type of indemnity bonds and should not be confused with an insurance policy. In a typical insurance policy, the insurer has to defend the insured as well as indemnify them. More importantly, they are not able to get repaid from the insured for the amount of any loss or any costs associated with the claim. Compare that to a claim on a bond. First, the surety looks to the contractor to make sure that there it is a valid claim and, more importantly, the surety will ask the contractor to indemnify it for any claim damages and lawsuit fees.
Subcontractors, laborers and suppliers are the ones that benefit from a payment bond.
The problem generally arises for a general contractor as they are unaware that there is a problem until they get a claim filed against them. Sureties also do not like payment bonds as they can, in some cases, end up paying for work twice.
Let’s go through an example. Let’s assume that Riddler Materials was not paid by Joker, even though Falcone made sure that Joker received their payment on time. So, Falcone would not even know that there was a problem (and would further assume that everything was just fine) until Riddler made a claim on the payment bond.
Falcone, if they were being diligent, would require a payment bond from Joker so as to eliminate this double payment risk.
How does a Bond differ from Insurance?
Insurance is written so that the risk of loss is spread among multiple parties while a bond is written with the assumption that there is not going to be any loss (although loss does occur). Thus, bond premiums are MUCH lower than insurance premiums. If bond rates were written in the same manner as insurance, then the cost would be somewhere in the 40% range – which is simply not sustainable for any construction activity.
Can I get a Performance Bond online?
Of course! What do you think we are, chopped liver?
What about a sample bond form?
How do these bonds work?
These come with guarantees from a third-party guarantor instead of the construction contractor. This type of security bonds are usually taken out with the help of an insurance company or bank institution and this will cover the entire cost of the construction project if the contractor fails to deliver. They generally take a much longer approval because they need to go through various institutions. They may also be associated with extra costs as an agency may need to be used to create the security bond. If the contractor is unable to complete work it can be extremely costly for them. Because of the extended approval process and extra costs only a few different types of construction projects may require a bond.
- Bond insurance cover – What does bond insurance cover? It covers the loss associated with one party not living up to the terms of any contract
- Bank performance guarantee – A bank performance guarantee is another name for a performance bond.
- Bid bond bank guarantee – a bid bond bank guarantee is another name for a bid bond.
- Performance security form – this form is used by most Obligees to show what is being covered under the bond.
- Surety agreement sample – we have lots of sample forms that we use to help everyone understand what it is that we do and what is covered.
- Difference between bonded and insured – a bond is specific to a single entity and is underwritten based on that job and the risk of loss, which is assumed to be zero. Insurance on the other hand is a risk sharing tool where losses are assumed. If bonds were written like insurance they would be much, much more expensive.
- Company guarantee – a company guarantee can be used in lieu of a surety bond, but is much riskier to the Obligee
- Bond premium – the bond premium is based upon the size of the job. For bonds under $400k, a good rule of thumb is 3% of the job; larger jobs are cheaper
- Contract of suretyship – this is the agreement with the bond company
- Surety contract – a surety contract is used to assure that a surety can recover from the Obligor
- Construction guarantee – this is another name for performance bonds
- Obligee bond – the Obligee bond is provided to make sure that the party that is being protected is actually being protected
- Bonded employee – a specific employee can be bonded (called a fidelity bond)
- Surety agreement – the surety agreement is the actual form used to provide assurance
- Bond underwriter – this is the individual at the surety company that determines the risk and pricing of any performance bond
- Performance guarantee contract – this is another name for a performance bond contract
- difference between insured and bonded – being insured is the ability to share risk with a pool of other people. Bonded is more like a guarantee, where the risk is not being shared, but instead falls on another party. If bonds were priced like insurance, they would be prohibitively expensive.
- collateral bond – a collateral bond is a bond where the surety does not provide the underlying bond without some sort of other collateral. The collateral is usually preferred to be liquid, such as an irrevocable letter of credit, but some sureties will also take other pieces of collateral, such as certain equipment or even real property.
- the guarantee insurance – sometimes a surety bond will be called guarantee insurance, although as you’ve seen above, a performance surety agreement is not insurance. Instead, it’s a three party agreement to guarantee the performance of an underlying contract.
- what is bond rate – the costs can depend on several factors. The first, of course, is the type of a bond. For performance bonds, the general starting rate is three percent (3%) of the contract. This amount will go lower as the contract size grows. For other bonds, the price is typically lower. For a probate bond, the standard price is around 1% and Notary bonds are usually priced using a fixed fee price for several years.
- being bonded and insured – some companies are both boned and insured. In these cases, the bond protects against a specific job or task, while insurance spreads risk across a pool of similarly situated companies.
- bond obligee – the bond obligee is the party that gets the benefit of the bond or underlying surety. Thus, if the Obligor defaults on its obligations, then the obligee will look to the surety to make it whole pursuant to the terms of the surety agreement.
- surety company definition – This is a company that provides surety on behalf of someone else. In most cases, a surety company is a division of a large insurance company, but as we discussed above, it can be another private company.
- performance bank guarantee – This is also called a performance bond. However, the performance bank guarantee does not have to make a claim for any payout to be given. Instead, the payout is given upon demand of the Obligee. Obviously, these are much harder to get than a normal performance bond.
- security bond definition – This is a bond that provides surety pursuant to the terms of another agreement. In the U.S., these are usually referred to as performance bonds.
- assurance bond definition – an assurance bond is a bond that provides a guaranty, or other surety assurance, based upon an underlying agreement. In the states, these are more typically called performance or contract bonds.
- cost of bond – the cost depends on the size and type of the bond. For most contract bonds, the price starts at three percent (3%) and then goes down based upon the size of the bond and the creditworthiness of the Obligor. The price can increase if the bond or Obligor is deemed risky. For notary bonds, these are super cheap while court bonds range from 0.5% to 2% of the assets.
- bond claim – This is when one party (such as the Obligee, a subcontractor or material vendor) makes a claim upon the job bond. The claim is then processed by the surety to see if the claim was timely made and that the dispute is valid. If the claim is valid, the surety will then pay, or get another contractor to finish the job, and then look to the Obligor for recompense.
- bank guarantee cost – the cost of a bank guarantee is typically three percent (3%) of the underlying job. However, these bonds are very difficult to get as the surety will require collateral in the amount of the bond being written.
- benefits of bonds – the biggest benefits of a bond is to the Obligee. The Obligee is assured that the Obligor will not mess up, and if the Obligor does have a mistake, then it will be taken care of. This helps facilitate commerce. For many Obligors, the benefit of getting a bond is the ability to get a job that they otherwise would not qualify for.
- licensed insured bonded – the trinity or holy grail of all contractors is to have all three of these. A contractor wants to be licensed, as well as insured. Being bonded, along with being licensed and insured, means that they can bid on any job they want as well as tell their customers that they are a “safe” company to do business with.
- contract surety – a surety can write a bond for many reasons, but one of the biggest reasons is to provide assurance based on an underlying contract. So, they become the contract surety on behalf of the Obligor.
- getting bonded for small business – when a small business gets a bond, they can then go out and bid on more jobs. Further, there is a marketing benefit to being bonded as well as the small business can now assure its customers that it is a stable company that is able to complete jobs.
- bond obligee – the Obligee to any surety bond is the party that receives the benefit of the bond. In a contractual situation, this is the owner of a project. Thus, if the general contractor is unable to perform, then the Obligee can look to the surety to make it whole.
- who is a surety – well, anybody can be a surety. All you need is for a someone to be willing to act on behalf of another. In the older days, sureties were typically individuals, as a wealthy individual would provide surety on behalf of another. That then evolved into companies providing surety to other companies. Finally, in the modern age, most sureties are large insurance companies, such as AIG or Zurich.
- bonding a company – the company that provides the bond is the surety and the company receiving the bond is the Obligor. So, when the surety is bonding a company, they look at the Obligor to make sure that there will not be any default under the bond to cause a claim and, if there is a claim, that the surety will not have to pay anything or can receive reimbursement from the Obligor.
- company guarantee bond – a company guarantee bond is the same thing as a performance or payment bond. The surety bond is guaranteeing performance on behalf of one company.
- performance warranty bond – This is also known as a maintenance bond. This bond is usually attached to a standard performance bond. The maintenance bond provides that the finished product will continue to perform as expected for a specified period of time, such as one year following completion of the job.
- on demand bond – These are quite different than a typical performance bond. In a normal performance scenario, any bond claim must first go through a verification process. This verification process will make sure that the claim is valid before the surety will pay. In an on demand bond, the surety pays immediately. Then, after that immediate payment, the surety will look to the company regarding recompense. As you can imagine, these are very, very hard to get.
- fully bonded and insured – most owners want their licensed contractors to be both fully bonded and insured. The insurance provides protection against normal business losses, while the bond is specific to the job at hand.
- guarantee bond – This is another name for a surety bond. This guarantees the performance of a party.
- surety insurance definition – surety is different than insurance in that it does not pool risk to be shared, but instead is written on a specific basis.
- what is a bid bond and a performance bond – a bid bond is one that is written to provide assurance that a contractor will take a job if they are awarded a job. Thus, the owner of the project gets some assurance that they won’t have to start the process over with another company. Performance bond protect the owner from any default in the actual performance of the job. Normally, in bid situations, the bid bonds are done at the beginning and then performance bonds are written once the contract is signed.
- surety underwriting – surety underwriting is done assuming no losses in the job or other surety. That is, the surety underwriter does not assume that a certain percentage of companies or people will default, but instead writes the bond assuming a no loss scenario.
- surety fee – the typical fee for a contract bond is approximately three percent (3%) of the contract price. This can go up based on the risk of the situation, but can also be decreased as the job size increases.
- commercial surety – in the modern age, most sureties are now commercial arms of large insurance companies. Thus, a commercial surety will write the bond based on their experience across multiple industries and using historical data.
- surety underwriter – the surety underwriter is the individual at the surety that is in charge of writing the bond on behalf of the surety. The underwriter analyzes the risk of the company that is wanting to be bonded and also the risk of the job at hand.
How do I get a bond?
Well, you should call us. Right now. The general process works like this: we will have you fill out a bond application and see if we can get you approved quickly. For larger bonds (think over $400,000), we ask for company financials and some other information to get the bond price lower. We can usually get smaller bonds approved in a day or two and larger bonds take just a bit longer.
P&P bonds – a P&P bond is another name for a performance and payment bond. In the industry lexicon it is abbreviated to P&P bonds. This can also be abbreviated as a p&p bond or p & p bond.