Confused About Bonding?

Here is a quick overview of bonding.

Bonding a contract has been a requirement for most construction related government contracts. However, more and more service contracts and occasionally supply contracts are requiring surety bonds for both public and private projects. Also more prime contractors are requiring their sub-contractors to bond, as well. Exactly what is a "surety bond?" It is a three-party arrangement between the surety, the owner of the project, and the contractor. The surety guarantees that the contractor will complete the project in accordance with the contract documents issued by the owner. Surety companies are usually subsidiaries of insurance companies, but unlike traditional insurance which compensate for unforeseen events or losses, surety is designed to prevent a loss. Typically there are three types of bonds required for public and some private contracts. There are: 1)Bid Bond - Ensures that the bidder has submitted the bid in good faith and will enter into the contract at the price quoted and is capable of providing the required performance and payment bonds. 2)Performance Bond - Ensures that the contractor will complete the contract per the terms and conditions sited in the contract. The bond protects the owner from financial loss should the contractor not satisfactorily meet the requirements of the contract. 3)Payment Bond - Ensures that all suppliers, subcontractors, and labor associated with the contract are paid. Traditionally bonding can be difficult to obtain for a small business, especially when they are first starting to compete in the public and private sector. There is some hope, though. The U S Small Business Administration oversees a Surety Bond Guarantee Program that assists small businesses obtain bonding. (See the following article to learn more about recent changes to the program.) Also, there are companies that have recognized the difficulties that small businesses have when trying to secure bonding and are creating programs that are based on experience and character rather than on financial profile. The Orange County SBDC can help you through the bonding process to identify a program that is right for your business. In addition, we can assist you to access your financial resources to perform on a specific contract and if needed, assist you to secure working capital for that project. If you are an experienced business owner currently pursuing publiv and private contracts, call 714.564.5200 to learn more about our bonding and financing assistance.