What are Performance Bonds?: In the most simple of terms, performance bonds are a guarantee that a contractor will finisht the job according to the standards agreed upon. If you don’t complete the job as described, the obligee (typically a municipality or government entity) can file a claim on your bond and you are responsible for paying that bond back if the claim is found valid.
How much do they cost?: Well, it depends. A general rule is 3%-5% of the total bond amount ( but there are exceptions). So, if you need a bond for $100,000 you can expect to pay $3,000-$5,000 for the performance bond. Sidenote: bond payments are required to be paid in-full and are 100% earned. That just means that once you payf or them, there is no refund.
Who pays for Performance Bonds?: Generally, it’s the contractor. Since the contractor is the one that needs to be bonded, the contractor is generally the one that pays for it.
Are they easy to get?: Yes, but there are several factors that come into play. Bond companies are guaranteeing that a contractor has the finances to complete the job. So, if the contractor doesn’t have solid financials, it will be harder for them to get bonded. Other factors include credit, experience and current workload.
How to get a Performance Bond?: The easiest way is to reach out to someone that is licensed in your state to provide bonds (at the time of this article I am licensed in Texas and Tennesse). I would collect some information and take it to several carriers and they would determine how much you are eligible to be bonded for. That process can take a day or longer, depending on how quickly you can get the needed inforamtion 🙂
I hope this helps you understand a little bit more about performance bonds. If you have any questions, please reach out to me at JoshA@CIMTX.com
Thank you for reading!
Flower Mound, TX 75022