Date Published: March 21, 2016

Surety1 flew over to Hawaii to visit clients and participate in Douglass Trade show’s annual conference, the Hawaii Building, Facilities & Property Management Exposition on April 9 and 10.  The convention was targeted at private building owners and managers to meet with vendors about all matters concerning facilities management.  As one of those matters, we felt the important need to shed light to the benefits of surety bonds for private owners.  Anyone in the public works arena is familiar with performance and payment bonds, since it is a state and federal law to provide such bonds to guaranty construction projects.  However, bonds can also be required by private owners to guaranty successful and on-time completion of work, and to protect against potential liens for unpaid suppliers and  subcontractors.

Hawaii Expo

Hawaii Buildings, Facilities & Property Management Expo


Many owners were very interested in learning more about how a surety bond can protect them against contractor defaults.  The process is easy once one understands the basics of bonding, and when/if they should be requiring bonds.

How Does a Performance and Payment  Bond Protect the Owner?

Simple.  The performance bond guaranties to the owner, that the contractor will perform the agreed work to specifications of the contract. This would mean at the agreed price, time, warranty, and acceptable manner that the contract specifically states.  In short, if an owner hires a contractor and he/she defaults on the contract at any stage, the performance bond would guaranty the surety company would hire another contractor to successfully complete the project at no additional cost to the owner.  The payment bond ensures that all 1st and 2nd tier subcontractors and suppliers are paid on the project.  This helps to minimize liens on the building as subs and suppliers are protected by the payment bond, a more efficient way to protect ones rights to payment.

How Much Does a Performance Bond Cost the Owner?

This depends on many factors of the contractor but in general it would be between 1 and 3% of the contract amount.  Think of it as a small fee for complete piece of mind.

When Should an Owner Require a Bond?

It’s a tough question to answer but most owners typically require once jobs get over $100,000. Think of it this way: the larger the project, generally the more that can go wrong.  A bond protects the owner from wrongdoing. In fact, the simple act of requiring a bond on a project will weed out less qualified contractors from submitting bids.

What Should an Owner do Next if they Wish to Require a Bond on an Upcoming Project?

The owner should make it clear that when soliciting for bids, it clearly state that the project will require performance and payment bonds and the price should be included in the proposal. If as an owner reading this has any questions, they can always contact us direct at 877-654-2327 and ask for someone in the contract bond department.

Surety1 has been writing bonds in Hawaii since 2003. Our experts can assist in prequalifying contractors to working with owners on questions about bonding, and everything in between.


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