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In many states, a compliance bond is required to ensure that builders, contractors, and developers are following local and state regulations and paying appropriate taxes. This is an additional enforcement mechanism for municipal and state authorities.
Compliance bonds must be obtained before becoming licensed to start a project. It places a burden on contractors to create a plan for the project, which takes into account local and state regulations. If a dispute arises and the contractor is found to be at fault for any violations, the bond will protect the state and property owner up to its value.
How Compliance Bonds Work
Compliance bonds are contracts between a contractor, the state, and the bond issuer. Typically, local and state authorities determine the total value of the bond. The bond issuer evaluates the contractor and his plans for the project to quote a premium for the bond. The contractor must pay these premiums to keep his license valid, so he can start and continue the project. Typically, the bond is held until local authorities give final approval on the project.
Another perspective on the compliance bond is that it is insurance for municipalities and property owners against reckless contractors. The difference is that this insurance is being purchased by the contractor.
How Price is Calculated
The total bond value of the compliance bond is determined by state and municipal authorities. Typically, premiums are a small percentage of this amount, which can vary based on the applicant and project.
With compliance bonds, the bond issuer has a financial incentive in making sure that the contractor is following local building codes. The premiums they charge reflect the amount of risk they are taking in issuing the bond. Some of the factors they take into account include the contractor’s prior claims, work history, financial situation, and project plans.
How to Purchase a Compliance Bond
At TMD Surety Bonds, we work with multiple providers to help you find the best compliance bonds. Due to our experience, volume, and relationships, we find the best prices.
We work only with the most reputable surety providers and have simplified the entire process so you can focus on what matters – your business. We are known for our exceptional customer service and quick turnaround time.
and get immediate approval.