Payment & Performance Bonds
Performance bonds guarantee the performance of a contract by the contractor. The signed contract is incorporated by reference into the bond, and includes the guarantee that the contractor will complete the contract for the agreed-upon price in the specified amount of time. In the event of default of contract by the contractor, the surety is required to step in and fulfill the requirements of the contract. They can do this by either funding the bonded contractor to complete the project, hire a new contractor, or pay the project owner the necessary funds to complete the project.
Rates for performance bond vary, depending on the type of work being performed and the financial qualifications of the contractor. Most sureties have a multi-level, tiered rating system.
To apply for a contract bond line, surety companies require the following:
- Completed Contractors Questionnaire
- Last 2 or 3 years’ business financial statements, preferably prepared by CPA
- Personal financial statements of each owner of the business
- Bank letter of reference, to include information on lines of credit
- Current work on hand report
- Project and Supplier References
- Current certificate of insurance
At Newton Bonding, we also have several programs available for the contractor that has minimal bond needs and consequently have minimal underwriting requirements. Check out our Programs section of our website for additional information.
Payment bonds are usually issued in conjunction with a performance bond. A payment bond guarantees to the project owner that the bonded contractor will pay its subcontractors and material suppliers connected to this project. A payment bond requirement will prevent unpaid subcontractors and suppliers from filing mechanic’s liens against the project.
The payment provision will often provide protection to second and possibly third tier claimants; i.e. subcontractors and suppliers of subcontractors. This will be specifically spelled out in the bond form