Date Published: December 9, 2013
What are Performance and Payment Bonds?
In our last blog we discussed bid bonds, its obligations, and how to apply. While bid bonds are simply to submit a bid estimate for a specific project, performance and/or payment bonds are required once the contract is awarded to a contractor. Each bond is different, though it’s common that the public entities these bonds protect require both. As a reminder to the three parties of a surety bond, there is the principal (contractor), obligee (person or entity bond is protecting), and surety company.
What is a Performance Bond?
A performance bond guaranties to the obligee that the principal will complete the project in accordance to the specifications of the contract.
What is a Payment Bond?
A payment bond guaranties that 1st and 2nd tier subcontractors and suppliers are paid for the work they were hired to perform or materials they supplied. For prevailing wage projects, it also protects that labor is paid the required prevailing wage.
What is the Cost of Each?
The cost of a bond is called a premium. Premium rates differ from contractor to contractor and from surety to surety but as a rule of thumb you can expect to pay 1-3% of the contract amount. Whether the obligee is requiring only a payment bond or only a performance bond, or both a performance and payment bond the cost is the same.
How do I qualify?
Qualifying for a performance and payment bond is the same process as for a bid bond, except that the principal has been awarded the contract. Because of this, the underwriter would also need a copy of the contract and bond forms, along with bid results if available.
The first step is to fill out a free application to get a quote. Quotes are no-obligation, and we’ll respond to your application within 1-2 business days (and often sooner!)
Surety1 was founded in 2003 and helps thousands of clients find the best prices on their surety bonds. We take pride in our work so that we can give you great service. Learn more about Surety1.