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Performance Bonds

What is a Performance Bond?

Performance bond

A Performance Bond is a surety bond that guarantees the completion of a project or satisfactory performance on a project by a contractor.

There are three parties involved with a Performance Bond.

  • The principal is the contractor who will perform the job.
  • The obligee is the party who hires the contractor to perform the job.
  • The surety writes the bond to guarantee that the contractor will fulfill their obligation.

When Do I Need a Performance Bond?

Performance Bonds are required before beginning most construction projects. Usually, before being awarded the construction contract you will have already submitted a Bid Bond, which means that you've agreed to secure a Performance Bond in the event that you will be contracted to perform the job.

There are certain service contracts not related to construction that also require Performance Bonds, such as school bus contracts or janitorial services.

Why Do I Need a Performance Bond?

The Federal Miller Act requires Performance Bonds for all federally funded projects $100,000 and above. Private developers usually require Performance Bonds as well. General contractors often require Performance Bonds from their sub-contractors, which is called "bonding back."

Benefits for the Obligees:

Performance Bonds protect developers from losses. If the contractor fails to perform their obligation, the developer can make a claim on the bond to recoup money in order to pay another contractor to complete the project. As is the case with any surety bond, the surety will require the principal (contractor) to reimburse the surety for any money paid out by the surety for any claim made on the bond.

How Much Are Performance Bonds Written for?

Performance Bonds are written for the dollar value of the work being performed.

How Much Do Performance Bonds Cost?

The cost of a Performance Bond (the "rate") is a small percentage of the full contract amount, usually between 1% and 5%. The rate varies from contract to contract. A highly qualified contractor may receive lower rates than a contractor with worse credit or financial deficiencies. Usually larger contracts have premiums that are a smaller percentage of the overall bond amount, while smaller contracts are priced a little higher but have fewer underwriting requirements. Viking Bond Service, Inc. will always offer the program that is best suited for the contractor at the lowest rate possible.

Many factors may influence the cost of a Performance Bond, including:

  • The amount of the bond
  • The contract size
  • The state where the contract is held
  • The surety provider
  • The principal's credit
  • The principal's financial status
  • The type of work: some surety providers may be more willing to provide Performance Bonds based on the type of work being performed.
  • The principal's job performance history
  • Brokers' and agents' fees: Commissions, and operating costs such as overnight fees, credit report charges, etc.

If you would like the developer to cover the costs of your Performance Bond, you can include your bond costs within your bid. However, it will increase your bid, which may lead the developer to select a competing contractor.

What Do You Need to Secure a Performance Bond?

There are many variables that determine the requirements for Performance Bonds, as the risk to the surety varies widely. To obtain a bond, you will need to provide:

  • Information about the job, including:
    • the project description
    • the amount of your bid
    • your source of funding
  • Your personal information and your company's history, including:
    • The amount of time your company has existed
    • Your bonding history
    • Your personal credit score
  • And business financials, including:
    • A balance sheet
    • Income statement
    • Cash flow statement
    • Work schedules
    • Complete notes and disclosures

For projects valued at $350,000 or less, it is possible to secure a Performance Bond on the basis of your tax returns alone, provided that you have good credit.

For larger and more complex Contract Performance Bonds, we require a full submission that consists of:

  • A credit check
  • A full length Contractor questionnaire
  • A copy of the contract or bid invitation
  • Your prior year and current business financials
  • Personal financial information on owners
  • A bank letter.

One of the key elements in getting your Contract Performance Bond is approved is your credit. Good credit goes a long way towards demonstrating your financial stability to an underwriter. However, it is possible to get a Contract Performance Bond with bad credit. Credit issues are a major challenge for smaller contracts because they are based on your personal finances. However, your personal credit doesn't have as much of an impact on larger contracts, provided you have strong business financials and established experience in your field.

Get Your Performance Bond Fast

We provide streamlined programs for contracts up to $250,000 that have proven to be very successful for contractors with limited bond activity. We can underwrite and issue these bonds quickly, and typically only require a credit check, a copy of the contract or bid invitation, and a short application.

We are here to help you get everything you need to secure a Performance Bond. Contact us today with any questions, to request a quote, or to receive a free consultation from one of Viking's Contract Bond experts.

Two Easy Ways to Request a Performance Bond Quote Today

  • Call us at 1-888-278-7389.
  • OR
  • Complete the contact form on the page. One of our agents will contact you shortly.

Performance Bonds, Payment Bonds, and Bid Bonds: A Seamless Bond Line

Performance Bonds are part of a series of Contract Surety Bonds, functioning with Bid Bonds and Payment Bonds in a "bond line" to cover every step of construction projects.

Consider your bond line as a pre-approved credit line, which includes individual limits for each bond, and a total limit that consists of all of your bonds combined.

Bid bonds are the first step: They guarantee that you will be able to fulfill your contract and take out a Performance Bond in the event that the developer selects your bid.

Once you've been awarded the bond, you'll need a Performance Bond, as well as a Payment Bond, which guarantees that you will pay the laborers, suppliers, and subcontractors necessary to complete the job. Usually, Payment Bonds and Performance Bonds are packaged together within a single rate. The difference between the Performance Bonds and Payment Bonds is that while a Performance Bond guarantees that the job is completed, a Payment Bond guarantees that those who worked on the project are paid appropriately. It is rare that one is required without the other.

Your Surety Provider Matters

Choosing the right surety bond provider can make a big difference. You want a provider who can give you great rates, and expert information on all of your surety bond needs. While selecting a provider, be sure to find out about their claim support. Remember, if someone makes a claim on your bond, you are responsible. Having an agent that can help you in the case of a claim is very important.

Performance Bonds at Viking

We have an expert team of Contract Bond specialists who are experienced in the inner workings of Performance Bonds in all arenas. We are here to help clients gain an understanding of the costs and requirements of their Performance Bonds. We have many repeat customers because of the expert service our staff provides.

Contact us today and we can determine your maximum bonding capacity, and provide a quick lesson on how Performance Bonds work.

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