Construction Bonds 101 [3 Steps to Getting Your First Contract Bond]

Many companies do not pursue public work, simply because of the fear of having to obtain a surety bond. Bid bonds, performance bonds, payment bonds, and maintenance bonds are often required on every public construction project.

I know this thought of potentially having to obtain surety bonds sounds like a painful process to be able to bid this work. But it’s not a painful process at all. More contractors are able to get into this space than you would realize. In our Construction Bonds 101 Guide, we outline what the surety bond process typically looks like.

Step 1: Pre-Qualification

Contact a surety representative and discuss the size of jobs that would be of interest your company. ZipBonds has a team of surety representatives that would be more than willing to help throughout the process. The surety representative would then discuss with surety companies/markets to find the one that is willing to give the support that aligns with your vision.

If the single job size is below the $500K-$750K range, minimal underwriting information will be required. If the desired job size is larger than that, the information required would be company financials, personal financials, a contractor questionnaire, etc. Once the program has parameters set and a rate defined, you would know what type of public jobs you could go after. There is no cost to provide pre-qualification for a bonding program.

Step 2: Bidding a Job

If there is interest in bidding a public job, you will need to provide a bid bond on a project-by-project basis.  At times certain private owners also require bid bonds. This requirement is to ensure project bidders submit a bid in good faith. A bid bond protects the project owner from financial loss. If the low contractor selected for the project fails to execute the contract, the surety company that provided the bond may compensate the owner for any losses. There is no cost to provide a bid bond. 

Step 3: Providing a Performance and Payment Bond

If you have provided a bid bond and are requested to execute the contract, you will likely be asked to provide a performance and payment bond. This promises to the owner that the contractor will complete the project according to the terms of the contract, as well as ensures the contractor will pay suppliers and subcontractors. The typical rate for a contractor providing a performance and payment bond Is 1-3% of the contract amount. 

Bond requirements differ greatly depending on who the project is to.  The Miller Act requires surety bonds be used on federal jobs larger than $100,000. The state rules differ greatly by state. For instance, the Iowa Little Miller Act requires bonds be provided on public jobs in the state of Iowa larger than $25,000. But the Florida Little Miller Act requires bonds be in place for all contracts of $200,000 or more. 

Although Zip Bonds can get you pre-qualified for a bond in a matter of minutes, it is highly recommended to have the discussion early on. Your surety representative is the key to opening a new door that contains a world of possibilities. 

Ready to get started? Fill out our quick pre-qualification form online here or give us a call at 888.435.4191.