Frequently Asked Questions

What is a surety bond?
Surety bonds are a three party agreement between the project owner (obligee), contractor (principal) and surety. The surety guarantees to the obligee that the principal will perform the agreement. General contractors may also require subcontract bonds from their subcontractors and in those cases, the contractor is the obligee and the subcontractor is the principal.
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Why is a surety bond necessary?
Under the Miller Act of 1932, all Construction Contracts issued by the Federal Government must be backed by Performance and Payment Bonds. States have enacted what is referred to as “Baby Miller Act” statutes requiring Performance and Payment bonds on State Funded projects.
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Do I need a CPA prepared statement?
The recommendations outlined below may vary due to your particular circumstances and total revenue volume of business. Please contact us directly to answer any specific questions you may have.

Recommended Financial Statement Presentation:

• Contract size =/< $250,000 : In-house balance sheet and P&L on an Accrual basis
• Contract size =/< $1,000,000 : CPA prepared Compilation including footnotes and schedules prepared on a percentage of completion basis
• Contracts > $1,000,000 : CPA prepared Review including footnotes and schedules prepared on a percentage of completion basis

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What is a bid bond?
The Bid Bond is required as bid security to the project owner indicating that the contractor is qualified to perform the dollar size and type of work being offered and, if awarded the project, the contractor will execute the contract and furnish performance and labor & material payment bonds. If any of these conditions are not fulfilled, the project owner can forfeit the bid security. All underwriting takes place at this level. Although it’s a minor amount, usually 5% of the bid, as stated it guarantees that final bonds will be furnished and therefore all pre-qualification takes place at this time.
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What is a performance bond?
Performance Bonds provide a guarantee to the obligee that the principal will perform the contract in accordance with the specifications in a timely manner. This bond is normally issued for 100% of the contract amount.
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What is a payment bond?
Labor & Material Payment Bonds assures payment to subcontractors and suppliers on the project. This provides the obligee with a lien free project provided the owner/oblige has satisfied their contract obligations. Since liens cannot be filed on public projects, this is also a remedy that subcontractors and suppliers have if they’re not paid.
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What is the turnaround time?
Approval time varies depending on the type of bond and the program the applicant falls under. Some are approved and issued immediately, others can take up to 1-4 business days after we have a complete file. The key to expediting the process is to respond in a timely manner with all of the information requested.
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Why does my spouse have to sign the indemnity agreement?
The bond is a credit transaction similar to the bank lending process. Since the bond company is guaranteeing your work and payment of bills, they expect the owner(s) of the company and their spouse(s) to also provide personal guarantee these obligations in the way of a signed indemnity agreement. Your spouse must sign because of joint ownership/transferability of personal assets. The key is that, since you know your business much better than the surety can ever hope to and you are hesitant to guarantee your contracts, why should the surety?
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How much do surety bonds cost?
Bond premiums vary greatly depending on the qualifications of the applicant, contract type, duration, surety, state where work is performed and job size. Standard market rates are typically anywhere from 0.5-3%, while higher risk markets can range anywhere from 2-5% of the contract amount. Bond rates are also based on contract amount and not bond amount.
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What is a maintenance bond?
A Maintenance bond guarantees the work for defective materials and workmanship for a specific period. The first 12 months are assumed in the performance bond and included in the base premium. Requirements beyond one year have an additional premium between .25-.5%/year after the first.
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What is a subdivision bond?
Subdivision bonds assure the state, city, or township that the principle will finance and construct improvements for the good of the public. Such improvements include, but are not limited to: streets, sidewalks, gutters, drainage systems, and turning lanes.
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