What is a surety bond?
A surety bond is a three-party agreement that provides a financial guarantee. The three parties are the principal (the contractor), the obligee (the project owner or entity requiring the bond), and the surety (the company backing the bond). Essentially, the surety guarantees to the obligee that the principal will fulfill their contractual or legal obligations.

What are the main types of construction surety bonds?
The three most common construction surety bonds are:

• Bid Bond — Guarantees that if you win a bid, you’ll enter into the contract at the price you proposed and can/will provide a Performance & Payment bond. It acts as a pre-qualification tool to protect the project owner from unqualified bids.
• Performance Bond — Guarantees that you’ll complete the project according to the contract terms. If you can’t finish, the surety ensures the project gets completed.
• Payment Bond — Guarantees that you’ll pay your subcontractors, laborers, and material suppliers.

When are surety bonds required?
Surety bonds are required on virtually all public (government-funded) construction projects. The federal Miller Act requires performance and payment bonds on federal projects over $150,000, and Louisiana has its own “Little Miller Act” with similar requirements for state and local public works (at varying project size requirements). Some private project owners & lenders also require bonds for added protection.

What does the bonding process look like?
It starts with a conversation. We get to know you, your business, and your goals. From there, there are two broad “paths” to take:

1. The “Fast Track” path. This path relies almost entirely on the owner(s) personal credit scores, with programs maxing out at $1,000,000.
2. The “Standard” path. This path is a much more well-rounded, and information intensive process. You share your financial information (business and personal financial statements, work-in-progress reports, bank references, etc.), business plan, resumes on key employees, and more. We review the entirety of this information and present your account to one of the ~40 surety companies we work with to secure the best fit for you. The surety evaluates your financials, experience, and capacity to establish a bonding program.

What do surety companies look for when evaluating my business?
Sureties generally evaluate what the industry calls the “Three Cs”:

• Character — Your reputation, track record, and experience in the industry.
• Capacity — Your ability to perform the work, including your equipment, workforce, and current workload.
• Capital — Your financial strength, including working capital, net worth, and credit history.

What financial documents will I need to provide?
This depends on how large of a bond you need. With good credit and needs under $1,000,000, we only need a short application with basic/general company information.

For larger work programs, these typically start with 3 years of company financial statements (Balance Sheet and P&L), a current Personal Financial Statement, and a current Work in Progress report. For work in excess of $3,000,000, a CPA Prepared financial statement is typically required.

How much does a surety bond cost?
The premium for a construction surety bond generally ranges from about less than 1% to 3% of the contract amount. Your specific rate depends on factors like your financial strength, the amount of information available, the quality of the available information, experience, the project size, and more.

Is the bond premium a one-time cost?
For bid bonds, we do not charge our clients anything. Performance and payment bonds are generally paid as a one-time premium at the start of the project. However there are scenarios in which renewal premiums may apply.

Can I get bonded if my business is new or my credit isn’t perfect?
Yes, in many cases. While strong financials and experience help, we work with multiple surety companies who specialize in this area, and understand which sureties are more flexible with newer contractors, or those rebuilding their credit. That’s one of the advantages of working with a surety-only agency…we know the market inside and out and can find the right fit for your situation.

How long does it take to get bonded?
It depends on where you are in the process. If you already have an established bonding program, we often issue bonds the same day you request them. For contractors new to bonding, the initial setup (gathering documents, underwriting, and establishing your line, etc.) typically takes a bit longer.

Do I need a surety bond for private projects?
It’s not legally required, but many private project owners, lenders and general contractors request bonds as a condition of the contract. Having bonding capacity also signals to potential clients that your business is financially sound and professionally vetted, which can be a real competitive advantage.

Still have questions? Contact us or call our President directly at 225-324-5481. We’re happy to help.