Floyd Arthur PDF Increase your credibility with a surety bond http://carmoongroup.com When Are Surety Bonds Required? Surety bonds are required for any federal construction contract valued at $150,000 or more, and many state and local governments require them as well. Additionally, many private entities require bonding for large commercial projects. Floyd Arthur #floydarthur http://floydarthur.info

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Increase Your Credibility with a Surety Bond By Floyd Arthur
As a contractor, you know that your reputation is your most important asset, so you
strive to complete all of your projects on budget and on time. Nonetheless, when you are
working on large projects with many moving parts, you know that something is certain
to go wrong. In most cases, these problems are minor and easily remedied, causing
nothing more than slight cost overruns or short-term delays. Occasionally, however,
their effects can be devastating—even preventing you from completing a project at all.
It’s for these rare occasions that surety bonds were designed.
Increase Your Credibility with a Surety Bond
What Is a Surety Bond?
In general terms, a surety bond is a contract between three parties:
 The principal: The construction professional who contracts to perform work.
 The obligee: The agency or client for whom the work is being performed
 The surety: The company that issues the bond and guarantees the contractor’s
obligations under the contract.

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If the contractor fails to fulfill the terms of its contract with the obligee, the surety fulfills
the contract (for example, by hiring a new contractor) or pays the obligee for any
damages incurred. Unlike an insurance policy, however, the contractor is required to
reimburse the surety for its loss.
Either the principal, the surety or both can be sued for the bond, and both can be held
liable for the entire amount guaranteed.
In the construction industry, there are four types of surety bonds:
 Bid bonds, which ensure that the firm that bids on a contract will enter into the
contract if it wins the bid
 Payment bonds, which ensure that the contractor pays subcontractors and
suppliers for their work
 Performance bonds, which ensures that the contractor performs the work in
accordance with the terms of the contract
 Ancillary bonds, which ensure non-performance related requirements
When Are Surety Bonds Required?
Surety bonds are required for any federal construction contract valued at $150,000 or
more,and many state and local governments require them as well. Additionally, many
private entities require bonding for large commercial projects.
How Do Contractors Qualify for Surety Bonds?
A bond is a guarantee of reliable performance, so sureties screen all applicants carefully
before underwriting their work. Although each company has different criteria, the
evaluation typically includes four components. These include:

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Financial stability:The surety evaluates the company’s financial stability based on a
review of its business operations, financial statements and credit score. Financial
statements should be well-organized and, if possible, prepared and maintained by a
CPA. The business also needs good cash flow, a history of timely payments to
subcontractors and vendors, and a good relationship with a bank.
Integrity: To evaluate the integrity of a business, the surety looks at every level of the
company’s operations, including accounting practices, record keeping and human
resource management. It may also require letters of recommendation from business
contacts, such as customers, suppliers and employees.
Longevity: Longevity refers not just to the length of time a company has been in
business, but also to the way the business is run. The surety reviews the company’s
business plan and the plan for continuing operations when the owner leaves. It also
looks at employee turnover, and whether supervisors and managers have sufficient
experience to manage the project it is being asked to guarantee.
Capacity: This is an evaluation of the resources the company has at its disposal. If the
surety determines that a company has “too much on its plate” or is overextended
financially, it may decline the bond even if all other factors are in place.
Getting qualified for a surety bond may seem like a daunting process, but it is easier if
you have an experienced agent to help you prepare. Our construction insurance experts
have a great deal of experience in the bonding process, and can assist you in finding the
resources you need. We are available Monday through Friday from 9 a.m. to 6 p.m., so
call 516-292-3780 to schedule your appointment today. Or, if you prefer, request a
free consultation online now and we will get back to you within one business day.