Bonding Overview

Surety bonds are risk transfer mechanisms that protect project owners from financial and contractual risks by guaranteeing the contractor’s performance in accordance with project contracts.

Bond Types

• Bid Bonds - Assures that a bid has been submitted in good faith and that the contract will be entered at the price bid.
• Performance Bonds - Protects the project owner from financial loss when the contractor fails to perform according to the contract terms.
• Payment Bonds - Assures that the contractor will pay subcontractors, laborers and suppliers.

Obtaining Bonds

Pre-qualification is based on the rigorous and thorough examination of the contractor's business operations. Surety companies are concerned with the following:

• Capacity – Does the applicant have the skill and ability to perform the obligation?
  • The ability to meet current and future obligations;
  • The experience match the contract requirements;
  • Necessary equipment or the ability to obtain them; and
  • Organization, management plans and continuity plan.
• Capital – Does the financial condition of the applicant justify approval?
  • Excellent credit history and relationships with banks;
  • Cost control mechanisms;
  • Cash flow, net worth, and working capital; and
  • Annual and interim financial statements.
• Character – Does the applicant’s record show him/her to be of good character and likely to perform the obligation?
  • Good references and reputation with project owners, subcontractors, suppliers and lenders.

To learn more about surety bonds, visit Surety Association of America.

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