What are performance bonds for service contracts?
A performance bond for service contracts (or service contract bond) guarantees the performance of a non-construction service provider. It offers financial protection to clients if the service provider fails to fulfill the agreed-upon services. Service contract bonds are different from performance bonds used in the construction industry, as they’re tailored to industries like:
- Security guard services
- Street sweeping
- Window washing
- Trash removal and recycling
- Educational services
- Management services
Service contract bonds sometimes go by other names, like performance or service bonds. These bonds can provide financial protection, risk mitigation, and increased confidence to clients who enter into service contracts with you. The federal, state, or local government may require you to obtain this bond before starting work. You may also need this bond for specific private projects or contracts.
Get Your Performance Bond:
- A service contract bond guarantees the performance of a non-construction service provider, such as a janitor, window washer, security guard, or street sweeper.
- These bonds provide financial protection, risk mitigation, and increased confidence to clients who enter into contracts with service providers.
- The cost of this performance bond is a small price to pay for the financial security and peace of mind it gives clients.
- If the service provider fails to deliver the agreed-upon services, a client can file a claim against the bond.
How much do performance bonds for service contracts cost?
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.
How do service contract bonds work?
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).
Why are performance bonds for service contracts necessary?
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.
Apply for Your Performance Bond
ZipBonds offers the fastest and most secure option for getting the surety bonds you need. Our all-digital platform is intuitive and straightforward. Apply online or call us at (888) 435-4191 to get bonded in a flash!
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.