Surety Bonds for Construction

How Surety Bonds Can Help Cement More Business

Construction spending in the U.S. reached $1.98 trillion in August of 2023 according to data from the U.S. Census Bureau. As opportunities arise, setting your business apart becomes more important than ever. Rather than investing in new equipment or pumping up your advertising budget, being bonded and insured is a quick and relatively easy way to qualify for (and ultimately win) more bids.

Surety bonds for construction is an agreement between an owner, contractor, and a surety to guarantee compliance, payment, and performance. They give your prospective customers greater confidence in working with you because they ensure the project gets done and all bills are paid—even if you can’t complete it due to unforeseen circumstances. In this article, we’ll tell you more about surety bonds for your construction business.

Surety Bonds Built for Your Business

The type of surety bond your construction business needs depends on the unique opportunities and challenges it faces. Whether you are looking for a comprehensive bond program or a single bond for a specific bid, performance or payment, a specialized bond agent can work by your side to ensure you fully understand your options and the requirements for each. Generally speaking, a construction project will require a mix of bid, performance and payment bonds.

Five Common Surety Bonds for Construction

Bid bonds guarantee that you will actually accept the job upon winning the bid. Federal law requires this bond for all contractors bidding on projects valued at $100,000 or more.

Performance bonds or contract bonds are a little more complex. They affirm that you, the contractor, will complete the project and abide by applicable laws as well as specific “industry standards.” However, if these standards are not clearly defined, they can potentially open you up to breach of contract—that’s why it’s so critical to work with a surety bond provider who truly understands your industry.

Payment bonds affirm that you will pay your workers (including subcontractors and suppliers) in accordance with the agreed-upon contract terms.

Warranty bonds or maintenance bonds are essentially bonds that guarantee post project completion that the workmanship is of standard quality and protects against defective materials. If the project is found to be defective following completion, the bond amount can be used to pay for needed repairs. These bonds typically last one to two years.

Contractor license bonds are not tied to any specific type of project; rather, these bonds guarantee that you will conduct business in a “lawful and ethical manner” compliant with industry standards. For example, some states require all contractors to be licensed at the state level while others require licensing by certain municipalities. Because of these variances, it’s very important to partner with a surety bond provider who understands your business, including the types of project you pursue and the regions in which you operate.

The Surety Bond Approval Process

The underwriting process for surety bond approval is typically rigorous and time-consuming. Sureties need to know your company, work history, employee organizational chart, strategic business plan, financial statements for the past three years and work-on-hand information just to start the process.

It’s important to work with a partner that has a deep understanding of your company’s financial situation, growth objectives and other important aspects of your business. This allows them to foresee potential complications and potentially even fast-track the application process.

Future Flexibility

A surety bond is only valid for the duration of the underlying contract. However, your agent may recommend writing the bond to extend for a maintenance period (usually about one year). This is specifically designed to insulate you, the obligee, from unforeseen financial obligations in case problems arise or an aspect of the project needs to be re-done.

How Acrisure Can Help

Acrisure has expertise in both construction insurance and surety bonds for construction. When you’re our client, we work to gain a deep understanding of your company’s financial situation, growth objectives and other important aspects of your business. This allows us to foresee potential complications and potentially even fast-track the surety bond application process.

Trust your surety bond to a provider who truly understands your construction business. Contact us today for help writing the surety bonds you need to win more bids.

And if you're looking for solutions to help protect your construction business, request a business insurance quote online now or explore our business and insurance solutions for construction companies or all sizes.