Performance Bonds for Service Contracts

The cost can vary depending on several factors, including the type of services, the size of the contract, and the business’s financial strength. Generally, service contract bonds cost a small percentage of the total bond amount.

For example, a service provider with good credit and strong financial history may obtain a bond for 1-3% of the bond amount. On the other hand, a service provider with poor credit or limited financial history may pay a premium of 5-10% or more.

The cost of your performance bond is a small price to pay for the financial security and peace of mind it gives your clients.

When you apply for your bond, the surety provider will evaluate your financial strength, creditworthiness, and experience to determine your risk level. If low risk, the bonding company will issue the bond after you pay your premium.

If you at any point fail to deliver the agreed-upon services, a client can file a claim against your bond. The surety will pay the client to settle the claim if the claim is valid. Then you must reimburse the surety for the same amount (plus interest in fees).

Service contract bonds offer several benefits to your clients and may give them more confidence in hiring you for a job.

• Risk mitigation: Service contract bonds mitigate the risk of working with new or unknown service providers. By requiring a service contract bond, clients can ensure that the service provider has been evaluated for financial strength, creditworthiness, and experience, reducing the risk of hiring a provider that may not be able to deliver on their promises.
• Financial protection: If the service provider fails to perform, the client can file a claim against the bond and recover the cost of hiring another provider to complete the work.
• Increased confidence: Customers can also rest assured that their service provider has a financial stake in the project’s success and is committed to delivering high-quality services.