Bonding is a financial guarantee or debt security held by contractors to ensure their contractual obligations are met. It is completely separate from general insurance policies.
Bonds that guarantee the contractor will pay their sub-contractors and material suppliers include:
- Bid Bonds (job tender)
- Labour and Materials
- Performance
What do they guarantee?
Bonds guarantee that at any stage of the project, should the contractor default or choose not to complete it, the bonding company will ensure the obligations are met.
Maintenance Bonds
These bonds are purchased after a project is complete. They provide coverage for a period of 2 or 5 years (job specific) against faulty materials or workmanship that result in repairs or replacement.
Bonding Process
- Complete the contractor’s questionnaire
- Provide personal financials for the company principals
- Bank reference letter
- 3 years of business financial statements for the operating firm, affiliates, and related companies
- Working capital of $200,000 is advisable
Who requires bonding?
Businesses that require bonding would include excavation contractors; window and door installers; granite manufacturers; and most contractors in the construction industry.
