What You Should Know About Performance Bonds
Do you know exactly how a performance bond works and why you need one? They can be confusing, so we interviewed our own Senior Vice President of Surety, Mark Levinson, for the basics of this specific surety bond. Having recently written an article for Construction Savvy magazine on this very topic, Mark’s expertise delivers all the answers you need regarding performance bonds.
What is a performance bond?
First of all, a performance bond is a surety bond issued by an insurance company that guarantees the completion of a project by a contractor. Most contracts involving government money requires bonding to protect taxpayer dollars. In the private sector, it’s used as a risk management tool to help ensure that building projects get finished.
Why do you need a performance bond?
A performance bond is a safety net provided by the insurance company (guarantor) for the contracting entity (obligee) to ensure the work will be completed even if the contractor (principal) is unable to do so themselves. If the surety company is able to obtain a bond for you, it shows that you and your business are financially stable and are a good risk.
How much does a performance bond cost?
Rates can range from .5 to 4%, based on various considerations.
The price of a performance bond is tabulated using the full contract amount of the job. Larger, qualified companies who are vying for multi-million dollar contracts usually pay a performance bond rate of .5 to 1%. So let’s say the contract amount is $30 million. You’d pay roughly $300,000 to secure the performance bond. Once a bond is issued, it cannot be canceled which is why the premium is fully earned.
Smaller or less experienced companies may see rates around 3 or 4%.
How do I get a performance bond?
Bond requirements will determine how you get started. It can range from simple completion of a small credit application to a full submission. When completing a full submission be prepared to complete a questionnaire, provide business and personal financials, and respond to specific questions for clarification.
The good news is, Brunswick Companies can tell you what your options are within five minutes. Give Mark Levinson a call today at 330-865-4265, and he’ll discuss what steps you need to take to win that contract.