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Timber Sales Bond

timber sales surety bond

A logging business that intends to clear trees off of government land likely needs to obtain a timber sales bond before being granted access. Surety bonds are an important but often misunderstood part of the process. Use this resource to learn how these bonds work and what they mean for the bond party.

What is a Timber Sales Bond?

A Timber Sales surety bond provides an obligee (state or federal government) a surety's financial backing of a timber contractor's ability to pay any amounts due to gain access to government land to harvest timber and other forestry related products, as well as the contractor's ability to harvest in a manner that adheres to the contract between the government and the contractor.

Timber sales surety bonds are a type of contract performance bond, but the terms of government timber contracts differ from normal construction related contracts. An ordinary construction project contract involves an obligee (government agency with a contracted project) contracting with a principal (the contractor awarded the contract) to pay the principal a set amount of money to complete a job. The principal would consider the complete cost of completing the job, inclusive of surety bond costs, when negotiating or bidding on the contract. The obligee would pay the contractor the final determined figure to complete the contract. Timber sales contracts work differently. The principal pays the obligee for access to the land for harvesting. The principal has to use their own funds to cover harvesting the forestry products as well as covering the cost to adhere to any environmental concerns such as road maintenance, erosion control, natural resource protection and any other specified requirements. In short, the principal is wholly financially responsible for the operation and must have the funds to successfully complete it.

How does a Timber Sales Bond work?

The timber sales contract bond provides the obligee with a financially backed surety guarantee that the principal will adhere to the terms of the contract. For this surety bond type, that means that the surety is guaranteeing the payment due the government from the principal for access to forestry land. The surety bond also covers the harvesting of the forestry products identified in the bond as well as the manner in which the products are harvested. If the principal fails to pay the government the required amount to gain access to the land, the potential for a claim arises. If the principal harvests in a manner that violates the terms of the contract, the potential for a claim arises as well. If a claim is filed on the surety bond, the surety will determine the validity of the claim and may be required to pay the claim up to the bond penalty amount. When this happens, the surety seeks to recover the funds expended on settling the claim by collecting from the principal. The principal is ultimately responsible for any amount spent settling claims on their surety bond.

Who should get a Timber Sales Bond?

As a general rule of thumb, anyone planning to pursue logging projects on government land should plan to obtain a surety bond. There may be exceptions under rare circumstances, but bonds serve as an important safeguard. Therefore, they factor into most relevant logging agreements. When a surety bond is necessary, it's important to seek one out immediately to avoid unnecessary delays to the start of the timber harvest. Move fast with Viking Bond Service - a national surety bond company with the resources to get you a bond quote ASAP.

Who are the parties involved in a Timber Sales Bond?

The timber company is only one of three parties involved in a timber sales surety bond agreement. Understanding who's involved also helps illustrate how these surety bonds work in action.

  • Principal - The principal is the logging company required to obtain the surety bond. The principal must also pay to settle any claims the obligee files against the bond.
  • Obligee - The obligee is the government entity responsible for the land in question. If that entity determines the principal hasn't acted lawfully and ethically, it may file a claim against the surety bond seeking damages.
  • Surety - The surety is the company that issues and backs the bond. It will pay for all valid claims, but it will also require the principal to pay that same amount back with interest and fees added to the debt.

How much do Timber Sales Bonds cost?

The surety bond premium (the amount the principal pays to activate the bond for a specified period of time) varies depending on the state and the nature of the logging project. However, in all cases the premium amounts to a small percentage of the bond amount. Underwriters will quote exact premium prices based on the credit and financial strength of the applicant.

How are claims handled for Timber Sales Bond?

Upon receiving a claim, the surety company that issues the timber sales surety bond will use whatever resources necessary to investigate whether the claim has merit. Provided that the details check out, the surety pays the claim in full up to the amount of the bond. That settles the claim, but it does not cancel the principal's debt. Instead, the principal now owes the surety instead of the obligee.

How to apply for a Timber Sales Bond?

Due to the nature of the contract associated with timber sales contract bonds, the underwriting process for these bonds can be more involved. The surety has to determine the likelihood of a claim being made on the surety bond. To do this the surety reviews the financial standing, credit standing as well as the company's (principal) history and active projects. The surety needs to be able to see that the principal has the ability financially and materially to fulfill their obligation to the contract.

Some common items needed to underwrite a timber sales bond request are as follows:

  • Contract bond application (The simple online surety bond application is not sufficient for this bond type.)
  • Copy of the contract.
  • Bid tabulation.
  • Job cost breakdown.
  • Work on hand schedule.
  • Financial statements.
  • Verification of Assets.
  • The required surety bond forms. (Obtained from the obligee)
  • Evidence of pending timber sales, if any, is beneficial.

As with most other contract surety bonds, each request can have its own unique circumstances and the items needed for underwriting review can vary. It's best to speak with one of our contract surety bond agents to know exactly what is required to underwriter your specific request.

Timber Sales Surety Bonding at Viking Bond Service

Viking Bond Service has been able to place these surety bond requests for our clients. We work with markets that write these surety bonds and we work to seek the best terms for our clients. Additionally, we work with the SBA in situations where underwriting the bond requires assistance from the SBA Surety Bond Guarantee program. There's no better place to get your timber sales surety bond request fulfilled. Call us today to get started at 1-888-278-7389 or connect with us through the contact form on this page. We have a team of surety bond experts standing by to answer your questions and explain exactly how your bond works. Get all the resources you need for as long as you require a surety bond - work with Viking Bond Service from the start.

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