Performance Bond
What is a Performance Bond?
Performance bonds—also known as contract bonds—are a financial tool to help ensure large projects are completed successfully. Common in the construction and real estate development industries, owners or investors often require developers to assure that contractors procure performance bonds to protect the value of the work provided in the case of an unforeseen negative event. Essentially, a performance bond is issued by one party to contract a second party as a guarantee against the issuing party’s failure to meet contractual obligations. It’s important to note, a performance bond is not insurance. If there is a claim against the bond, TMD will pay the amount of the bond to the obligee and seek recompense from the principal or contractor.
Performance Bond Process
The contractor bond process entails the following steps:
- The project manager determines whether the project specifications require you to be bonded.
- If so, you must contact your surety bond company to obtain a bid bond.
- Once a bid bond is obtained, you will submit your precise project bid proposal.
- If your bid is selected, you must contact your surety bond company to obtain a performance bond. Many surety bond companies will package performance and payment bonds together; if so, request a payment bond as well.
- Once you have completed the project under the terms of the contract, you should contact your surety bond company as the bond will likely no longer be necessary.
Selecting a Bond Company
Projects $750,000 and below are three percent of the contract amount. The contractor bond process is the best way to protect both yourself and your clients. When choosing a contractor bond company, look for a provider that sells to industry-leading companies, offers competitive premium rates, and provides a fast turnaround with excellent customer service.
Getting Started
For bonds up to $400,000 please complete the application provided. Once you have completed the application please upload or email it to us. We will be in touch with you shortly and usually have an approval for you the same day.
Bid bonds are free. Performance Bonds cost 3 percent of the total job with $0.00 hidden agency fees.
- Fill out the Fast Track App, Application for Bid or Performance Bonds and then save.
- You can then Upload your Bid or Performance Application and submit it directly to us.
- Once we receive your submission and approve the bond, you will be notified to pay for your bond online.
For bonds up to $400,000 please complete the application provided. Once you have completed the application please upload or email it to us. We will be in touch with you shortly and usually have an approval for you the same day.
Bid bonds are free. Performance Bonds cost 3 percent of the total job with $0.00 hidden agency fees.
- Fill out the Fast Track App, Application for Bid or Performance Bonds and then save.
- You can then Upload your Bid or Performance Application and submit it directly to us.
- Once we receive your submission and approve the bond, you will be notified to pay for your bond online.
The price for contractor bonds varies according to the amount of the contract, the experience of the contractor, the credit history of the contractor, and the financial strength of the business. The premium rate paid is a percentage of the contract or bond amount. The premium rate is in the range of 1 to 10 percent. Larger contracts have lower premium percentages than smaller contracts but result in a more comprehensive review of a contractor’s financial strength.
Bid bonds can usually be obtained without a fee, while some surety bond companies will charge a small administrative fee around $100 for each contract. A bid bond will usually amount to roughly 5 to 10 percent of the total contract amount.
The premium amount for performance and payment bonds is generally between 1 to 10 percent. Contractors with a solid credit history and extensive work experience pay between 1 to 3 percent, while contractors with poor credit history and less work experience pay between 4 to 10 percent.
Bond Purchase Process
1. Find Your Bond
2. Secure Pricing
3. Buy Online
Get Started
The bonding process can be confusing and cumbersome. Our surety bond experts are standing by and ready to answer any questions. Let’s get you bonded today!
Frequently Asked Questions
There are hundreds of different bonds for all kinds of purposes—but regardless the industry or project—they all operate essentially the same way. A surety bond guarantees that you will operate professionally and if you break the rules, a claim can be made on your bond which you’re responsible to pay.
For most bonds, you can get instantly approved and print bonds at your home or office. However, we do not offer instant approvals for a select number of bonds, as the underwriting process generally involves a more extensive review of the applicant.
The entity requiring the bond (the obligee) will determine whether a bond is required. Bond requirements vary greatly by your occupation and location. However, fidelity bonds are insurance and are usually optional to obtain.
For the most part, yes. Bad credit can increase rates for license and permit bonds and most can also get approved for fidelity bonds regardless of credit. For contract bonds, larger contractors with poor credit can be approved with strong CPA-prepared business financials.
You must fulfill the terms of the bond obligations, which vary immensely depending on bond type. Where you obtain your surety bond is important when it comes to understanding claims and avoiding them entirely. If you have any questions about what your bond does or doesn’t guarantee, reach out to our experts to help guide you along the way.
Surety bonds used for construction projects are called performance bonds, contract bonds, or construction bonds. A project manager often requires contractors to secure a performance bond as a guarantee to perform under the contract. If the contractor doesn’t perform well, the project owner can look to the surety bond company to ensure the contracted work is completed. Contractor bonds include, among others, bid bonds, performance bonds, and payment bonds.
A bid bond provides a project owner with protection that a project bid proposal will be accurate, a performance bond will be posted, and the contractor will be ready to begin work if awarded the project.
A performance bond ensures that a project is completed according to the provisions of the contract (e.g., agreed upon price, within stated time period). Contractors must obtain a performance bond for all federal and state government construction contracts.
A payment bond is required so that subcontractors or suppliers are compensated for work completed under the contract.
Looking to Get Started or Have Questions?
The bonding process can be confusing and cumbersome. Our surety bond experts are standing by and ready to answer any questions. Let’s get you bonded today!