A performance bond holds a contractor or construction company financially accountable when it fails to meet the performance standards outlined in a contact. For example, if a contract specifies that work must be complete by a certain date and it’s not, the project owner may file a claim against the performance bond seeking compensation for damages resulting from the missed deadline. Project owners often include performance bond requirements in work contacts to protect themselves from the risk of contractors who don’t live up to expectations. If you frequently bid on construction projects, you will likely need performance bonds multiple times throughout your career. They’re an integral part of your business, and something you can’t bring in revenue without. Given the stakes, it’s important to understand the performance bond basics and secure a performance bond as soon as possible if and when project owners require one. Avoid unnecessary setbacks and delays by preparing all the necessary documentation in advance. Here’s what you will need:
Expect any surety agency you apply for a performance bond with to ask for some level of financial statements. The size of the bond will generally dictate how extensive the requirement for financial statements will be. For smaller bonds they surety may only need a glimpse into the principal’s financial picture. For larger or higher risk bonds the surety may ask for multi-year and/or CPA involved statements. Your contract bond specialist at Viking will be able to guide you through this process. These statements are a formal record of business activities over a one-year period and they provide objective evidence of that business’s strengths and weaknesses – which is exactly why surety agencies ask for them. When you apply for a performance bond, underwriters (risk assessors) inside the surety agency go through a careful process to evaluate how likely you are to underperform, cause claims, and leave debts unpaid. One way they make that determination is by looking at your business’s past record and future prospects. If your business is less than two-years old or you are otherwise unable to provide the required financial statements, speak to the surety agency about a possible alternative.
Copy of the contract that the performance bond is linked to
Another way that underwriters evaluate risk is by examining the terms of the contract the performance bond is linked to and then comparing that to the resources of your company. To return to our previous example, if a contract called for a specific completion date that a contractor clearly lacked the staff or equipment to meet, that would make a bond seeker especially risky and give surety agencies second thoughts about bonding them. Be prepared to provide a full copy of the contact, including the exact language of the performance bond requirement and the details of performance mandated.
Application with the surety company
With performance bonds as with all other types of surety bonds, you will need to complete a standard bond application. Anyone else with an ownership interest in the business will need to complete an application as well. Be ready to supply details about your background, finances, and business interests. In most cases, applications take just a few minutes to complete.
Real estate or other collateral owned by the contractor
Depending on the surety agency you work with and the specifics of the project you need a bond for, collateral may be involved. Collateral works like a security deposit – you put up something valuable upfront which the surety agency can use to settle claims or return to you if no claims are filed. The surety agency will decide what kind of collateral it will accept. Real estate is the most common form, but other valuable fixed assets like heavy equipment may also suffice. A certificate of deposit or irrevocable letter of credit might also be acceptable. Keep in mind that not all performance bond requirements stipulate collateral, and even when they do, the collateral costs you nothing as long as you avoid claims.
Viking Bond Service – Performance Bond Specialists
If you need a performance bond, you likely need other surety bonds commonly associated with construction projects: bid bonds, warranty bonds, supply bonds, payment bonds, subdivision bonds and the list goes on. The point is, bonding plays a big role in your business. That’s why you need a reliable bond partner.
Viking Bond Service is a nationwide surety agency issuing performance bonds along with all other construction bonds. Count on us to offer the bond you need. We also work with bond applicants who have bad credit and often find them competitive rates when other agencies have turned them down. We strive to make bonding fast, easy and affordable for everyone we work with – the first time and every time after. That’s how we’ve become the go-to surety bond source for contractors across the country.
Are you ready to get a performance bond now? If so, get started on the online application. Do you have questions or need more information first? Our team is here to help – contact us through the form on this page or speak directly to a surety bond specialist at 1-888-278-7389.