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 to get bonded. 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 the bond is and why it’s a good idea to have one.

At NFP, we have made the performance bond application simple and easy. Simply contact us, and we will make sure you are properly bonded and insured. We only send our performance bond applications to top-rated insurance carriers. We work with companies on all sizes of projects. We also have a large amount of in-house bonding options we can offer our clients.

What Are Performance Bonds?

A performance surety 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 these bonds can cost 1% or more of the contract value. However, the benefits far outweigh the cost. A 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 One?

You must apply for a 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 with respect to projects you’re involved with.

Who Needs One?

The Miller Act, created in 1935, is the current law that requires 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 bond as a guarantee. However, it’s not needed unless someone requests one, however, some business owners attain them to build credibility and trust. Bonds have 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. Sureties 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 Them:

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 bond from a buyer. Plus, they 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 many 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 surety 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 bonds to ensure that the terms of a contract are met, or compensated if they aren’t met. In many states insurance adjuster bonds are required, and Janitorial service bonds, as well.

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 bonding for your next big project. It’s a move that will build confidence in the project and act as an insurance policy for the term of the contract. Furthermore, it’s a wise move to protect everyone’s business interests by securing a bond that will pay for the completion of the project or hire another company to complete the project. Contact NFP today, and let us do the shopping for you!