Monday, February 11, 2013
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I am posting there on topics relating to real estate, construction and land use.
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Friday, January 6, 2012
Contractor’s FAQs for Surety Bonding
Today's post is courtesy of Lance Surety Associates.
Contractor’s FAQs for Surety Bonding
The amount of paperwork required to bid on a construction project can, at times, be overwhelming. A common prerequisite for many public construction projects is to acquire a surety bond. Although their presence is common within the construction industry, many contractors know little about the services and benefits surety bonds provide. To help dispel myths and misunderstandings, the following is an insider’s look into contractor’s most frequently asked questions regarding surety bonding.
In simple terms, surety bonds are a form of financial guarantee. They help ensure stakeholders that contractors will complete work and play suppliers and laborers per the specifications of the contract. Surety bonds are an agreement between three parties:
• An obligee – the project owner
• A principal – the bond purchaser or bond owner
• A surety – the company who sells the bond and ensures the contract is followed
The origin of surety bonds dates back to 1935 with the passage of the Miller Act. This required performance and payment bonds on federal construction projects which exceed $100,000. With the Miller Act’s passage, several state legislatures also adopted similar regulations for smaller projects. These rulings are known as Little Miller Acts.
What is the difference between contract bonds and contractor bonds?
In short the answer is “nothing.” These terms are used interchangeably to refer to various types of construction surety bonds. The most common types of contract surety bonds are bid bonds, performance bonds and payment bonds.
• Bid Bonds : guarantees the contractor will enter into a project for the amount he/she bid upon
• Performance Bonds: these bonds protect project owners from contractor default or if work is not performed as outlined in the contract
• Payment Bonds: these ensure that all parties involved in the project will be paid appropriately. Often, performance and payment bonds are issued jointly as a single surety bond.
Surety bond costs range depending upon the geographic region the bond is required, the financial history of the applicant and the surety’s policy. Those with strong credit ratings will receive the most competitive rates, however those with weaker financial histories are eligible to purchase a bond through a surety company’s bad credit program. Rates range between 1 to 3 percent of the contract amount while high-risk applicants may spend as much as 20 percent of the bond cost.
One of the most commonly asked questions for surety bonding is how it differs from insurance policies. The main variant between the two is how risk is assessed. For insurance, individuals pay a premium to their insurance company which transfers most risk to the agency that is overseeing the policy. Should a claim be filed, it is the insurance company’s responsibility to ensure all parties are financially compensated. With surety bonds, the element of risk continues to lie with the individual who owns the bond, or the principal. If a claim is filed against the contractor who owns the bond, the principal will be expected to repay damages.
Vic Lance (vic@suretybonds.org) is the owner of Lance Surety Bonds a nationwide surety agency. He helps advise contractors and small businesses on the bonding process.
Contractor’s FAQs for Surety Bonding
The amount of paperwork required to bid on a construction project can, at times, be overwhelming. A common prerequisite for many public construction projects is to acquire a surety bond. Although their presence is common within the construction industry, many contractors know little about the services and benefits surety bonds provide. To help dispel myths and misunderstandings, the following is an insider’s look into contractor’s most frequently asked questions regarding surety bonding.
What is a surety bond?
In simple terms, surety bonds are a form of financial guarantee. They help ensure stakeholders that contractors will complete work and play suppliers and laborers per the specifications of the contract. Surety bonds are an agreement between three parties:
• An obligee – the project owner
• A principal – the bond purchaser or bond owner
• A surety – the company who sells the bond and ensures the contract is followed
Where did surety bonds originate?
The origin of surety bonds dates back to 1935 with the passage of the Miller Act. This required performance and payment bonds on federal construction projects which exceed $100,000. With the Miller Act’s passage, several state legislatures also adopted similar regulations for smaller projects. These rulings are known as Little Miller Acts.
What is the difference between contract bonds and contractor bonds?
In short the answer is “nothing.” These terms are used interchangeably to refer to various types of construction surety bonds. The most common types of contract surety bonds are bid bonds, performance bonds and payment bonds.
• Bid Bonds : guarantees the contractor will enter into a project for the amount he/she bid upon
• Performance Bonds: these bonds protect project owners from contractor default or if work is not performed as outlined in the contract
• Payment Bonds: these ensure that all parties involved in the project will be paid appropriately. Often, performance and payment bonds are issued jointly as a single surety bond.
How much do surety bonds cost?
Surety bond costs range depending upon the geographic region the bond is required, the financial history of the applicant and the surety’s policy. Those with strong credit ratings will receive the most competitive rates, however those with weaker financial histories are eligible to purchase a bond through a surety company’s bad credit program. Rates range between 1 to 3 percent of the contract amount while high-risk applicants may spend as much as 20 percent of the bond cost.
What is the difference between bonded and insured?
One of the most commonly asked questions for surety bonding is how it differs from insurance policies. The main variant between the two is how risk is assessed. For insurance, individuals pay a premium to their insurance company which transfers most risk to the agency that is overseeing the policy. Should a claim be filed, it is the insurance company’s responsibility to ensure all parties are financially compensated. With surety bonds, the element of risk continues to lie with the individual who owns the bond, or the principal. If a claim is filed against the contractor who owns the bond, the principal will be expected to repay damages.
Vic Lance (vic@suretybonds.org) is the owner of Lance Surety Bonds a nationwide surety agency. He helps advise contractors and small businesses on the bonding process.
Thursday, October 13, 2011
Announcement
I am now posting on Facebook rather than the blog. Please visit and "like" my page. I post interesting and useful articles relating to construction and real estate frequently!
You are also able to comment. Thanks for following. Click the title link above to connect to the page.
You are also able to comment. Thanks for following. Click the title link above to connect to the page.
Monday, August 15, 2011
Baltimore Among Top 10 Markets in College Towns
Click the link above for an interesting article on market conditions in Baltimore.
Monday, April 11, 2011
Maryland First State to Approve International Green Construction Code
The Maryland House of Delegates concurred with amendments approved by the Senate last week and Maryland has become the first state in the country to approve the International Green Construction Code (IGCC).
The IGCC has been developed by the International Code Council, in conjunction with the American Institute of Architects; ASTM International; the American Society of Heating, Refrigerating and Air-Conditioning Engineers; the U.S. Green Building Council; and the Illuminating Engineering Society to establish a model code focused on new and existing commercial buildings addressing green building design and performance.
Click the title above to read the entire article.
The IGCC has been developed by the International Code Council, in conjunction with the American Institute of Architects; ASTM International; the American Society of Heating, Refrigerating and Air-Conditioning Engineers; the U.S. Green Building Council; and the Illuminating Engineering Society to establish a model code focused on new and existing commercial buildings addressing green building design and performance.
Click the title above to read the entire article.
Tuesday, March 8, 2011
O'Malley Offers Famers Compromise on Septic Bill
With the septic debate raging in Maryland, Governor O'Malley, in his push to require high-end septic systems for new developments, has drafted a compromise to salvage the bill and even plans to wade into a polluted lake at midweek to draw attention to the issue.
What's your take on the Septic Bill? Is it toxic?
Click the title link to read more.
What's your take on the Septic Bill? Is it toxic?
Click the title link to read more.
Monday, March 7, 2011
Homebuilder Ads Highlight Pitfalls of Foreclosures
Home builders are advertising the benefits of buying a new home over buying a foreclosure home in an effort to attract those customers thinking about purchasing a home out of foreclosure.
Click the title link above to read the Washington Post article.
Click the title link above to read the Washington Post article.
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