Contract bonds are a must for many contractors starting new projects, and picking the right surety bond agency can save your business a tremendous amount of time and money. Over the course of a project, there are several bonds you might need to purchase, depending on the project terms. To get you the best deal and the contract bond that’s right for the project and your business, the surety bond company will need some important information from you.
Your surety bond agent will give you a list of documents they need to secure your contract bond. Also, they might ask you some questions related to your business. Expect the best agencies to ask you the following 4 questions, and be prepared to give them as much information as you can. Remember, the more information you can provide for your surety bond agency, the easier it will be for them to secure the best possible rate for your business. The considerations can also help you to spot any problems with a contract before it’s too late, so you can negotiate fair terms and not be surprised by unexpected claims later on.
#1 Have You Built a Reputation?
Your surety bond agent will want to know as much as possible about the project owner: you. Your reputation as a contractor matter, as well as the reputation of the other entities you’ll be working with. Has your construction company done a project of this kind before, or is this the first? What kind of reputation does your firm have, and how established and experienced are you as a contractor? Answering these questions honestly, and gathering as much supporting information as you can, will benefit you in the long run by helping you get the right bond for your needs.
These questions are important because the surety bond agency needs to know the likelihood that a claim will be filed against you before calculating your bond rate. As a contractor, monitoring your company’s reputation is always a good idea.
#2 Is Your Team Assembled?
Plan your project, and find the staff you need before you start
Before shopping for a contract bond, plan for your construction project as thoroughly as possible and make sure you know exactly what you’ll need in terms of labor hours. The surety bond company wants to be sure there will be a few staff changes as possible once the project gets underway and that your construction company has all the staffing necessary to deliver the project as promised. If you foresee staff changes during the project, let your surety bond agent know the details, so there are a few surprises as possible down the line.
With this in mind, it’s always a good idea to choose bids appropriate to your own individual firm's size and experience level. Remember that small successes can really add up fast, and if you’re in doubt about your ability to accomplish the big ones, don’t be afraid to bid on smaller projects instead.
#3 What's Your Commitment?
Make sure you’ve poured over the project contract, and you have a clear understanding of the contract’s terms. In particular, the surety will want to know if the contract ties you, the contractor, to an extended warranty.
An extended warranty leaves you open to a claim long after the project is completed and will obviously affect the terms of your bond. It’s important to remember that an extended warranty is not necessarily a deal-breaker in terms of getting bonded. But, since the surety bond company will be held responsible for any claims filed under the extended warranty, they’ll want to know what to expect.
#4 Are You Getting the Best Deal?
Working together with your surety bond agent will have you poised for success.
You’ll want to check the contract thoroughly to understand the extent of your liability along with the warranty terms. Be on the lookout for contracts that are vague, overly broad, or that subject you to terms that are unusual or unreasonable. Remember, you must purchase your bond before you can sign a contract. This creates an opportunity for you to go over all the contract details with your bond agent before signing anything.
For example, pay close attention to how the contract addresses design-error risk. If the contract is trying to shift all liability for design errors onto you, the contractor could be a red flag. You may be advised to renegotiate parts of the contract before signing and purchasing your bond in some cases. This could lower your rate and protect your construction company.
At first glance, the steps to getting a construction bond line can seem overwhelming. However, planning and preparing as much as possible before a project starts pays off in the long run. Not only will you get the best possible rate on your bonds, but it could save you from claims or other hassles. If you have questions about how you can get a contract bond, contact us for an individual consultation.
