Setting up a Surety Bond

Need to Set Up a Surety Bond? Here’s What You Need to Know

To win certain types of work, a contractor needs to be bonded. This process may seem daunting at first, but with a little information and the right agent partner, it’s easier than you might expect.

What Is a Construction Bond?

A construction bond is a surety bond. It provides financial protection in case a contractor fails to finish a project according to the terms of the contract.

There are different types of bonds:

  • A bid bond is submitted with a bid in case the winner of the bid is unable to begin work.
  • A performance bond covers the project in case the work is not completed under the terms of the contract.
  • A maintenance bond covers repairs that may be needed after an initial project is finished.
  • A payment bond guarantees that the contractor can pay for subcontractors and materials as needed and deliver a lien-free project.
  • A license & permit bond required by a municipality or other public body as a condition to granting a license or permit to engage in a specified activity

These bonds protect the party requiring a bond from financial loss. However, they do not relieve the contractor of financial obligations. If the surety has to pay due to the contractor’s failure to complete a job per the terms of the contract, the surety may sue the contractor or otherwise require the contractor to pay the funds back. Furthermore, a bond does not replace the need for insurance. When you apply for a bond, you will need to show proof of insurance.

Getting Bonded as a Contractor

Man and woman working, woman approving surety bond

The first step is determining whether or not a project requires bonding. This should be determined before making a bid. Bonds may be required for certain projects under state and federal laws. When bonding is required, verify the amount and type of bond needed.

Once you know the bond requirements, reach out to us for assistance. We have connections with many surety companies, and we will present your project to their underwriters and advocate on your behalf.

To provide you with prompt service, the following information will be usually be required in order to establish a contract line of credit:

  • The application form / questionnaire / Hotchkiss bond request forms
  • Your personal and business financial statements and tax returns
  • Bank information, credit agreements and a reference letter from your bank
  • Information about your business and all owners, partners or other key individuals, including resumes
  • Information about your work experience, including the jobs you have completed and the jobs you are currently doing, as well as your skills, specialties and training
  • Information about the project, including the type of work you plan to do, where the work will take place, the size of the job, and any other information relevant to your business plan
  • The bid proposal or contract
  • Proof of insurance

The more complete this information is, the more likely it is that you will be approved quickly and without any delays. Remember that the underwriter is guaranteeing your ability to pay subcontractors and vendors, and perform the job according to the terms of the contract. Just as you wouldn’t want to vouch for someone you don’t know, underwriters don’t want to guarantee the work of strangers. They want to get to know you first!

A few extra elements can create an even better submission. We recommend including:

  • Your business plan with information about why you want to do bonded work
  • Information about your target jobs – geographical area, size, specialties
  • Resumes for the owner and key personnel
  • Your plans for the future and how you are actively improving your operation

Hotchkiss Insurance can help!

We understand the time-sensitive nature of your bonding needs, and have designed our process and team to set you up for success.

Our surety practice is led by agents with deep financial backgrounds and CPA designations. We speak the language of our clients, their CPAs and surety companies so we can maximize the bonding capacity for our clients. Contact us to learn more.