Any project that is funded with Federal money and is over $250,000 in size will require performance and payment bonds. President Biden has just proposed a 2 trillion dollar investment in infrastructure. The overwhelming majority of this work will be bonded; meaning the contractor(s) bidding on this work will need to secure bid, performance and payment bonds.
There will not be a single 2 trillion dollar surety bond. Each contractor bidding on the work will have to qualify and secure a surety bond on a per project basis. Also, with so much work coming out, many of the general contractors will require subcontractor bonds from its subs.
How to Qualify for Performance and Payment Bonds
The role of the surety is pre-qualification of contractors. Surety 101 is the “3 C’s of Surety” Character, Capacity and Capital.
- Character is the “soft” underwriting. The surety may check references, pull credit reports and other means to determine that the contractor is honest and will do what they say.
- Capacity – does the contractor have the ability and experience to complete the work. Public works is different than private work. Paperwork requirements can be much more robust and certified payrolls completed. The surety may ask about the contractors ability to manage these increased reporting requirements in addition to verifying the skills needed to actually build the project.
- Capital is the money part. Does the contractor have the capital necessary to finance the construction and have a cushion should the contractor encounter issues with the job. The surety’s requirements to verify capital adequacy will vary greatly depending on the size of the project the contractor plans to undertake. Small contracts, say $500k or less, the surety may rely on nothing more than credit reports. As the size of projects grows, so will the financial reporting requirements.
SBA Surety Bond Guarantee Program
For contractors new tot he public arena, the SBA surety bond guarantee program may be an attractive path. The SBA guarantees surety bonds for certain surety companies, which allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties.
Surety1.com can assist contractors with all their bond needs. Surety1.com is a service of AsssuredPartners one of the largest and fastest growing insurance agencies in the country. Since 2003, Surety1 has been helping contractors obtain the surety credit they need. Surety1 is licensed in all fifty states and maintains an A+ rating from the Better Business Bureau.
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