Construction Surety Bonds at Fiscal Year End

The fiscal year is winding down for all states but Alabama (ends September 30), Michigan (September 30), New York (March 31), and Texas (August 31).  The other 46 states see their fiscal year ending on June 30.  With the good and growing economy, some states are projecting that they will see revenue surges as the year comes to an end.  Florida, Minnesota, and California are among the states projected to be in surplus this fiscal year.  State governments will often look to spend this extra money, and public works projects are a great way for them to do it.  States projected to be in surplus will likely see an increase in the amount of bids/potential contracts available for public works projects.  In order to have these potential contracts available to you as a contractor or construction company, you need to get contract , or construction, surety bonds.

Because of the increased competitiveness of the construction industry, the ability of a contractor to get surety bonds has a profound and correlated effect on contractor’s ability to acquire projects- especially government contracts.  Most, if not all public construction contracts are protected by contract surety bonds.

Types of Construction Surety Bonds

Construction surety bonds fall under the category of contract surety bonds.   Contract surety bonds protect the project owner against contractor failure.  They provide construction and financial security and assurance to the project owner that the contractor will perform all work at the agreed upon price and timeline and that they will pay certain subcontractors, laborers and material suppliers.

There are 3 types of basic construction bonds:

• bid
• performance
• payment

Bid bonds guarantee that if you are the low bidder for a contract, you will perform the all duties of the contract at the price you bid on it.  Performance bonds ensure that, in the opinion of the surety, the contractor is qualified and able to perform the contract in its entirety.  They protect the owner from financial loss and damage results out of contractor failure to execute the contract as agreed upon.  Payment bonds assures that certain subcontractors, labor and suppliers will be paid.

Construction Surety Bonds are not Insurance

Construction surety bonds do not serve the same purpose as insurance, nor are the two particularly comparable.  Obtaining a bond is more similar to getting bank credit than insurance.  Like bank credit, it is easier to get a bond in a smaller amount.  Getting a larger surety bond requires more information.  While insurance helps make sure that people are protected from things that could happen in the future, these construction bonds just guarantee that jobs will get done in a timely manner and that proper payment will be provided.

In order to get a construction bond, the surety company subjects the bond principal (the person or entity who buys the bond) to a prequalification process.  The prequalification process generally requires professional references, a good reputation, the ability to complete current contracts, the ability to complete future projects, having the proper equipment for the project or being able to obtain the proper equipment for the project, financial strength, good credit, an established relationship with a bank, and an established line of credit.

Benefits of Getting Construction Surety Bonds

There are many benefits to getting bonded by a surety company that include, but are not limited to:

• opening up new markets to contractors
• professional reference
• corporate experience
• funding verification
• contract reviews
• continuity plans
• unique perspective

Getting a bond from a surety company shows the government that your company is reliable and is safe to do business with.  These not only provide the direct opportunity for  business with the government, but construction bonds can help your company get more contracts and be more successful.

Why Do I Need To Get Bonded?

The Miller Act of 1935, which is still in effect today, requires contract surety bonds on all federal construction projects. The law stipulates that before any contract will be awarded to a person or company for the construction, alteration or repair of any US government buildings or public works project exceeding $150,000, that both a performance and a payment bond must be posted.  This law is significant because after it was passed at the federal level, many states and municipalities passed what came to be known as “Little Miller” laws.  These “Little Miller” laws were states’ and cities’ version of the Miller Act.  “Little Millers” required contract surety bonds on state/city projects in the states and cities they were passed in.  These laws will vary from city to city and state to state.  However, these pieces of legislation have made payment and performance bonds an imperative part of public construction.  It has increased the prevalence of contract bonds and the role they play in obtaining and maintaining projects.

This upcoming increase in government construction projects due to a revenue surplus provides a fantastic business opportunity to contractors and construction companies.  However, these opportunities are unavailable to those who do not get bonded!  To read more about performance bonds and payment bonds and how to get them, you can click here.

Where to Look to Get Public Works Contracts

Many states and municipalities will be the entities offering these extra public works contracts.

In California, CalTrans will have the listed projects that the State is looking to have completed. The following cities and counties in California have additional projects available:

• Alameda County
• Los Angeles County
• Sacramento County
• San Jose

In Nevada, the Department of Transportation will have the list of public works projects the State is looking to have completed. Reno and Las Vegas will also have additional projects available.

In Oregon, the Department of Transportation will list the public works projects the State has made available. Eugene, Salem and Portland will also have additional projects available.