EPA describes a green building as one “designed to reduce the overall impact of the built environment on human health and the natural environment”. Green building, also known as sustainable construction, is becоming a popular concept worldwide. And there’s good reason for that. It is estimated that 39% of total energy consumption and 65% of electricity consumption in the US can be attributed to buildings. So it’s not surprising that lawmakers, both at state and federal level, are trying to encourage green construction. If you own a construction company and are wondering if you should go in for sustainable construction, consider these benefits.
Green construction constantly addresses the use of materials that are non-toxic and have a favorable effect on occupant well-being. The U.S. Green Building Council (USGBC) uses the LEED (Leadership in Energy & Environmental Design) certification system when evaluating green buildings. It’s currently working on LEED’s fourth update which addresses such issues as air quality and the overall effect on human health. This is likely to spur further interest in green buildings from people with certain health conditions and those wishing to improve their general well-being.
It might come as a surprise, but building sustainably isn’t always more expensive than building the traditional way. Even when it is slightly more expensive, the difference is more than offset in the long run. Green buildings have much lower running costs and utility bills. Thus, more and more end customers realize sustainable buildings are worth the extra intial investment. Moreover, the price of green buildings remain more stable over time when compared to traditional buildings. Finally, a factor that might be considered for commercial buildings – studies show occupants of green buildings are more productive and therefore their labor – more cost-efficient.
Incentives for Builders
On a federal level, the Energy Policy Act of 2005 allowed for some tax deduction from the costs of making commercial buildings more energy efficient. The incentive was initially planned for just a year (from 2006 to 2007), but was later extended till the end of 2013. Similar pieces of legislation are very likely to be adopted in the future as well. As for cities and states, a lot of them have already put their own incentives for promoting sustainable construction. Currently, California and Texas seem to be the country leaders in various LEED projects.
Time of Execution
Building sustainably typically doesn’t take more time than building traditionally. This is an important factor when applying for public work projects. Federal and state projects often require construction companies to post performance and payment bonds. They are a financial guarantee that the winner of the project will execute all terms of the contract in a timely manner. Choosing green construction methods is not likely to affect building time and get you in trouble.
Better for the Environment
Sustainable construction is much gentler to the environment and our natural resources. For one thing, it uses about 30% less water than traditional construction methods. It produces less waste and doesn’t use toxic materials which are likely to affect nearby communities or disrupt biodiversity. But it doesn’t stop there. Since the end product is much more energy efficient, the environmental footprint over the course of its lifetime is also much lower. This is a very important point as energy demand is projected to increase in the future.
The biggest news among the freight broker community remains the $75K freight broker bond increase. And that should come as no surprise. The previous $10K freight broker bond remained untouched for more than 30 years. Then Congress passed the notorious MAP-21 (Moving Ahead for Progress in the 21st Century) law. Among other changes it mandated that freight brokers now post a $75K freight broker bond and extended the requirement to freight forwarders as well.
A freight broker bond is a form of financial guarantee set in place to protect customers and motor carriers from fraudulent practices. For example, truckers frequently complain about delayed payments. Thus, the increase aims to remedy such problems.
When the $75K freight broker bond increase was first announced, it came as a shock to many. Small and mid-sized freight brokers were afraid they would be unable to afford the higher bond price and be pushed out of business by the bigger players. Fortunately, for them, the freight broker bond market softened and most of them can now afford the bond. But for those who still haven’t, time is ticking.
The FMCSA set October 1st as the deadline by which all freight brokers and freight forwarders should have complied with the new requirement. But a wave of complaints (even a lawsuit) probably led to a grace period extension of 60 days. On November 1st the federal agency sent out warning letters to 1,034 brokers and forwarders who are still not compliant.
End of the grace period
December 1st marks the end of the grace period given by the FMCSA. If you don’t have a valid $75K freight broker bond by that date, the federal agency will have the right to terminate your brokering rights and revoke your license.
Operating without a license, even for a day, can seriously hurt your business. In addition to the fine you can incur, a lot of motor carriers are likely to refuse to do business for you. Since they want to be certain that they will get their payment, they get more and more conscious of whom they work with. It’s easy for anyone to check if you are compliant with the bond requirement through FMCSA’s website. That’s why your best bet is to apply as soon as possible.
How to comply
There are two ways to comply with the MAP-21 requirement. One is the said freight broker bond (BMC-84), the other one is a trust fund (BMC-85).
Small and mid-sized freight brokers will find the BMC-84 option suits their needs better. With it they pay an annual premium that is a small percentage of the $75K freight broker bond. The more your credit score improves and business grows, the less price you can expect to pay.
The BMC-85, on the other hand, is a trust fund and requires you to come up with the whole $75K. A bank will keep your money tied up as long as you operate as a broker or forwarder. In addition, you might have to borrow the money which affects your credit score and the bank will charge you for its services.
Thus, you should hurry up and apply for a freight broker bond quote. All brokers and forwarders who wish to be fully compliant, should apply before November 25 at the latest. Even though the actual deadline is December 1st, paperwork processing and the upcoming Thanksgiving holiday can delay the process. Moreover, it’s not allowed for existing brokers to have bonds that are backdated for more than 60 days.
Lance Surety Bonds works with a broad network of sureties to make sure you get the best deal. No collateral required, even if you have bad credit. Get your quotes instantly!
Florida is one of the best places to open an auto dealers. According to NADA’s state-of-the-industry report, Florida was among the states with the highest per-dealer sales for 2012. As with everywhere, there are a lot of licensing specifics, but they are not hard to understand. Let’s look at some of them and focus more closely on the auto dealer bond requirement.
In the State of Florida you are considered an auto dealer if you buy or sell 3 or more motor vehicles (for mobile homes and recreational vehicles the requirements states 1 or more) in any given 12-month period.
Auto dealer license applications are filed with your regional DMV office. On the application you can choose between one of four types of dealers. Franchised dealers have an agreement with a specific automotive manufacturer. They can sell both new and used cars. Independent dealers can only deal used vehicles. Wholesaler dealers can also sell either new or used cars but only to car dealers and not to the general public. Finally, auctioners are wholesaler dealers who sell through bidding.
Other application requirements
After you decide what kind of dealer you want to be, you need to have your business location approved by the DMV, provide fingerprints, buy garage liability insurance and file some business documents. You also need to pay a $300 license fee for each of your locations.
Then we get to one of the most important requirements – the auto dealer bond, also known as DMV bond or MVD bond. Auto dealer bonds are a license type of surety bonds. They are required from all car dealers as a guarantee that the bonded dealer will operate their business in accordance with state laws and regulations. It also serves to protect customers from scams and fraud. In case of a claim against your dealership, you and the surety that underwrote the dealer bond will be jointly liable to compensate all incurred losses.
Getting an auto dealer bond in Florida
Regardless of the type of license, Florida requires all car dealers to post an auto dealer bond to the amount of $25,000. What you pay is an annual premium – a percentage of the whole bond cost. Your premium is calculated after a thorough evaluation of your dealership, as well as your personal credit score. A good credit score is especially important, as surety bonds companies always assume a 0% loss ratio. A quick way to find out your premium is by asking for an online quote at a surety bonds agency’s website. For people of good standing the percentage is typically between 1% – 5% of the total amount of the bond.
People with a bad credit score (650 or below) will find it harder to get bonded in Florida, but if there’s a will, there’s a way. Bad credit dealer bond programs are available if your credit standing is not perfect. The dealer bond will be slightly more expensive – 5% – 15% percent premium – and sometimes a small collateral might be required. People with open bankruptcies and late child support payments are typically the two cases when surities decline a dealer bond.
Energy generation is a very complicated process that requires a lot of operational expenses. That’s why it’s important for utility companies to receive their payments on time. Utility bonds are one way to make that happen. This article will take you through the basics of what utility bonds are and explain how you can obtain them.
Utility Bonds Definition
Utility bonds fall under a category of surety bonds called “commercial bonds”. All surety bonds are essentially a contract between a minimum of three parties – a principal, an obligee and a surety. The principal is the side that needs to post the bond. The obligee is the one being protected by the surety bond. Finally, the surety is a surety bonds company that underwrites surety bonds and thus guarantees that the principal will not breach the contractual agreement.
The same mechanism applies to utility bonds. A utility bond protects a utility company (the obligee) by making sure that a business or a home owner (the principal) will not delay payments of their utility bills. If there’s a breach in the conditions of the bond, a claim can be filed and that makes both the principal and the surety responsible for covering all financial losses. The way it usually works is that, firstly, the surety pays for all incurred losses as soon as possible. Afterwards, the principal is obliged to pay it all back to the surety.
Getting a Utility Bond
Not everybody needs a utility bond. Sometimes it is required from businesses as a prerequisite to turn on their utilities. Other times, an individual with a history of late payments will also be required a utility bond before their services are restored. The best way to find out whether you will need a utility bond is by directly contacting the utility company you wish to be a client of.
The utility company will provide you with a utility bond form which will ask certain details about you and your business such as your credit score. Based on the information you provide, the company will give you the full amount of the utility bond you need to post.
Surety bonds are not like deposits, so you don’t have to pay the full bond amount and have a huge amount of cash tied up. Instead, you pay a premium that is a certain percentage of the total cost of the bond. If you pay your bills regularly, you can expect to gradually see your premium decrease in price.
Utility Bonds and Bad Credit
Like all financial guаrantee bonds, utility bonds are also considered highly risky by surety bonds company. When underwriting a bond, sureties always assume a 0% loss ration and that’s why they are often unwilling to issue utility bonds, especially considering the fact that people who usually need them have a history of late bill payments. A bad personal credit score additionally increases the risk, but that doesn’t mean that high-risk applicants cannot get bonded.
It might take a higher premium (5% to 15% of the bond amount) and sometimes you’d be required to post a collateral, but you still have a chance of getting a utility bond even with poor credit. There are two exceptions. People with open bankruptcies and late child support payments cannot get bonded.
Things are looking good for the construction industry, with construction spending getting close to pre-recession levels. That’s good news for people looking to get involved in federal or state work projects. But besides a lot of opportunities, public work projects are also very demanding in terms of requirements and paperwork. Governments want to make sure they are not wasting taxpayers’ money, so they have imposed a surety bonds requirement on many of the sides involved in a public works project. Suppliers of construction materials, for example, are often required supply bonds. Let’s take a closer look at what supply bonds are and how you can obtain them.
Definition of supply bonds
Supply bonds are a type of surety bond that fall in the broader category of contract bonds. But before we proceed, you might be wondering what surety bonds are in the first place. You are not alone. Surety bonds are a legal contract that binds three parties. The first one is the principal and they are the side that needs to post the bond, which stands for a certain promise on their part. The second one is the obligee – that’s the side the surety bond is protecting. The last one is called surety and that’s a surety bonds company. The surety underwrites the bond and thus guarantees that the principal is capable of meeting their obligations towards the obligee.
In the case of supply bonds, the bond makes sure that the supplier will furnish all materials as described in the contract. It bears no obligation on their labor, though. If there is a breach in the agreement and a claim is filed against the supplier, the surety is obliged to compensate the obligee financially. A supplier will then have a legal obligation to return the money to the surety.
That being said, not all public works projects will require a supply bond. Each state has their own requirement, whereas federal projects typically require a supply bond when they exceed $100,000.
Obtaining supply bonds
The best way to find a good deal on supply bonds is through the website of a surety bonds agency – one that works with many sureties. This increases people’s chance of obtaining a bond and getting a good deal.
You will be asked to provide a lot of details about you and your business – personal credit score, financial statements, proof of insurance, etc. Information about your previous experience is also needed because sureties want to determine your financial viability and how likely you are to trigger a claim. The contract bonds market has become more conservative in the past decade and surety bonds companies always assume a 0% loss ratio when underwriting them. Thus, all that information will be used to determine the price you pay for your bond.
You are likely to get a lower price if you have a good personal credit score and if you show strong financial statements. Thus, if you have overdue payments, you should go ahead and collect them as a higher net profit is viewed very favorably by sureties.
For all of the above reasons, it’s almost impossible for people with bad credit to obtain contract bonds, supply bonds included. New businesses may need to pay a slightly higher percentage and work on small projects at the beginning. As their experience increases, they can expect to be trusted with larger projects as well.
Importation of merchandise in the US is heavily regulated. As of 2003 the main regulating body is the U.S. Customs and Border Protection, whereas the rules and regulations are mostly determined by the Trade Act of 2002, more commonly known as the Mod Act. If you are operating as an importer, there might be cases in which you face a surety bond requirement, especially if you are importing goods that are subject to special regulations, such as food or firearms. The kind of surety bond required from importers is called a U.S. Customs Bond and can also be referred to as CBP Form 301. There are certain details about the customs bond that you need to know before you can apply for and get one.
What is a U.S. Customs Bond?
U.S. Customs Bond is a commercial type of surety bond. Generally put, a surety bond is an agreement between three parties – a principal (the one who needs to post the surety bond), an obligee (the one whom the surety bonds is protecting) and a surety (a surety bonds company, guaranteeing that the principal is capable of fulfilling their obligation to the obligee).
In this current case, the principal is the importer and the obligee is the the U.S. Customs and Border Protection. The customs bond is required to protect the U.S. Customs, as well as the public and makes sure you will pay your duties, taxes and fees on time and that you will comply with all laws and regulations, regarding the importation of merchandise in the U.S. In case of a breach of the agreement, a claim can be placed on the bond. If the importer is found liable, the surety bonds company will reimburse U.S. Customs and Border Protection for any losses, after which the importer will need to pay back to the surety.
When do you need a U.S. Customs Bond?
You don’t need a customs bond every time your import goods, but certain situations always require one. One such case is when the total cost of the merchandise you are importing exceeds $2,500. Each time you import foods or objects that might be potentially hazardous (such as firearms), you will also need such a bond.
Depending on your business, there are two types of customs bond you can obtain. Single Transaction bond is good for the occasions when you only need to import goods once and only at a specific port. A Continuous Customs Bond, on the other hand, can be used multiple times and at more than one port. For example, all international carriers that transport freight or passengers into the country (regardless of the means of transportation) usually obtain the continuous customs bond.
But importers are not the only ones who might be required to post a customs bond. Domestic carriers who wish to handle imported cargo “In Bond” also need to post one. “In Bond” means that the piece of cargo hasn’t been cleared by U.S. Customs and is not intended to be launched in the U.S. market. Finally, warehouses and other facilities who want to store secured cargo while it’s held by U.S. Customs fall under the bond requirement as well.
How much does a customs bond cost?
The price of your customs bond depends on a variety of factors – type of bond (continuous vs. single-entry), quantity and content of cargo, etc. A continuous customs is 10% of all fees and taxes you have paid in the previous 12-month period, but can be no less than $50,000. That does not mean, however, that you need to post the full amount. The price you pay to get bonded will be a certain percentage of the total amount of the bond. Only in case of a claim against you you will be liable for the full amount.
Single entry bonds are usually the minimum declared value of the merchandise you are importing, but the price may vary from port to port.
How to get bonded
Getting a customs bonds only takes a few minutes and can be done entirely online, through the website of Lance Surety Bonds. You can quickly determine the cost of your bond by getting a free quote.
The freight broker industry has been under the spotlight after the $75K freight broker bond increase. Some small, mid-sized and independent freight brokers became apprehensive about their ability to stay in business. The hike in licensing costs, however, can be offset by adopting various winning strategies to minimize other costs and reap a higher net profit.
Most freight brokers enjoy the freedom of choosing their workload and associates. They also use their expertise to get the most out of each working day. Here’s a brief overview.
Attend a freight broker school
Although you don’t need a certificate from a training program to become a freight broker, attending a freight broker school can provide valuable skills. Some offer comprehensive 5-day classes that not only run through the basics of becoming a freight broker, but teach you how to be better at sales and marketing. Others will even continue to work with you in the initial stages of your operation to ensure you ease into the profession and do not make certain mistakes. Finally, if you don’t have the time or a budget for a freight broker training program, many of the schools offer educational DVDs that will still cover enough of the strategies you need to become successful.
As a freight broker, you can enjoy the liberty of working at home. That’s great as it can leave you enough time to run other chores parallel to your work. Yet staying home all day (or even in an office for that matter) can isolate you from your peers as well as your potential partners and clients. So you need to use every possible opportunity to network with people in your industry. Join a professional association and try to attend conferences and other related events. Of course, you could use the Internet and the phone for networking purposes but sometimes nothing beats face-to-face contact.
When approaching people, though, bear in mind some basic rules of communication. You need to be good at discerning how different people will react to you as you don’t want to scare people away; neither should you be timid and mask your intentions.
Due to the nature of your business, you interact with a lot of people daily – clients, freight forwarders, carriers and truckers. And they all talk to each other. One of the reasons for the $75K freight broker bond increase was that many truckers were complaining about not being treated fairly and having their payments delayed. The higher bond price was set in place to prevent such treatment, but it left a bitter taste in many people’s mouths. Even if you have never been involved in such conflicts, you still need to be careful because freight brokers’ reputations have been somewhat tarnished. It will also help you avoid a claim under your name as that brings a lot of negative consequences for your business.
As the middle men between freight companies and the end client, freight brokers are usually piled up with paperwork, tasks and deadlines. If you are working alone, you might have to do that unaided and, as your business grows, it could become overwhelming. Now there are smartphone apps, designed especially for freight brokers. ITS broker is popular among both freight and truck brokers because it allows you to check truck availability and post loads directly from your phone. My Rig is a comprehensive Android app that will save you a lot of time on freight billing. Among its special features are the ability to rate bills automatically by a number of criteria (miles, weight, commodity, etc.), easy re-billing and convenient tracking across all bills and orders. If you are struggling with your schedule, get yourself a time management app, such as Evernote.
Work on your online presence
My final advice is to put some extra effort to make yourself visible on the Internet. A quick online search is increasingly people’s favorite way of finding somebody to do a job for them. Thus, if you invest in a website, a blog and social media accounts, you might find more customers coming your way. Post engaging content, reach out to people from your industry, participate in forum discussions and you will soon see the benefits.
By now anyone in the freight broker industry must have heard of the $75K freight broker bond increase. This new requirement is a part of a big piece of legislation called Moving Ahead for Progress in the 21st Century Act (MAP-21). Signed into law last July, MAP-21 brought a wide array of changes in the way surface transportation programs are funded. A lot of these policies affect freight brokers, freight forwarders and motors carriers. So let’s examine them more closely and mark some important deadlines.
What’s going to change
First of all, it’s important to note that the measures set out in MAP-21 are already in effect. The most widely discussed stipulation states that as of October 1st all freight brokers must now post a $75K freight broker bond if they want to continue operations. Freight broker bonds are required as a safety measure, protecting motor carriers and the end customer. If a freight broker fails to pay truckers on time, the freight broker bond will come into effect and cover the losses. Moreover, this rule extends to freight forwarders as well. Even if they do brokering only occasionally, they will still have to get the $75K freight broker bond.
The increase was no small thing. The previous amount of the cost of the freight broker bond was $10K and that had been the case for more than 30 years. In light of this, it’s understandable that the unexpected jump in the price of the bond took many people aback. Lots of people voiced their discontent in blogs and forums. Small and mid-sized brokers were especially vocal as they felt the new requirement might force them out of business or destroy their independence by making them join larger freight brokerages. The Association of Independent Property Brokers & Agents even filed a federal lawsuit against the $75K freight broker bond requirement on the grounds that it was anti-competitive and favored large-scale freight brokers.
For good or for worse, the price of the bond remained the same, yet all the commotion was not in vain. The Federal Motor Carrier Safety Administration (FMCSA) granted freight brokers with a 60-day grace period, during which they could try to find a good deal and renew their license. Thus, there are three important dates in the freight broker calendar. October 1st was the official deadline for freight brokers and forwarders to post the bond. On November 1st, all non-compliant brokers and forwarders will receive a warning letter from the FMCSA. And finally, all brokers and forwarders who fail to comply with the $75K freight broker requirement by December 1st can have their operating authorities terminated by the FMCSA.
Some more implications
Although the $75K freight broker bond increase was definitely the hottest issue, MAP-21 brings some other important changes that are not to be neglected. First of all, FMCSA is granted with much more authority than before and has already reacted to the new legislation by increasing fines for certain violations.
A really important change is the termination of a controversial practice that is colloquially known as “double brokering”. Double brokering occurs when a trucker receives freight but then hands it to another trucker. It’s considered an unfair practice because it makes tracking cargo more difficult, so clients don’t know who is handling their possessions. It’s also dangerous for the initial broker because he’d still be the one liable for lost or damaged property even if it was caused by somebody else down the chain.
That being said, the FMCSA hasn’t imposed any restrictions on “interlining”. That is, a trucker can be responsible for a piece of cargo from point A to B, but can then tender it to a different motor carrier.
The bottom line
The grace period is not over yet and it will take a few months of operation under the new rules before we can make conclusions about the effects of MAP-21. Yet, despite the $75K freight broker bond increase, the FMCSA said that the number of renewed freight broker registration increased in September. The figures are a bit skewed because some of the new applications come from motor carriers that are listed as freight brokers, but estimates shows that the number of actual brokers is also on the rise.
The cloud surrounding the $75K freight broker bond has another silver lining. The past few months saw a softening of the freight broker bond market and bonding companies became more generous when underwriting the bonds. Lance Surety Bonds can provide instant quotes and approval to brokers without requiring collateral. High-risk applicants (with low credit score or no credit history) are also welcome to apply. And even though they will file your bonds with the FMCSA right away, it’s better not to wait until the last moment so you can find a good deal and sleep easy that you are compliant with all the regulations.
Across the U.S., auto sales are finally picking up, so once again it’s a great time to be an auto dealer. However, if you want to establish your own car dealership you need to acquaint yourself with the licensing process and the paperwork it involves. While it might seem daunting, it’s actually a straightforward process that varies slightly from state to state. Let’s examine how you can get your license and the all-important auto dealer bond in the state of California.
It’s always hardest to figure out where to begin. So let’s start out by distinguishing the kind of car dealer licenses you can get in California. You can be a new car dealer, meaning that you are franchised by an automotive brand and follow its rule of operation. With a new car dealer license, you are allowed to sell used vehicles as well. Or you can obtain another type of license which only allows you to sell used vehicles.
Should you choose the first option, the California section of the DMV has made your life easier by issuing the New Dealer Application Checklist. It’s a convenient way to gather all the necessary information, after which you can download the applications forms and begin your licensing journey. As for used car dealers, you need to go through a mandatory training program, followed by a test, before you are allowed to file your license application. And don’t fret over it; there’s a checklist for you too.
Regardless of the kind of license you wish to obtain, you will also have to go through a criminal background check. If you have a record and are unsure if you will be granted the license, there’s an abbreviated application process for which you need to pay a $175 fee. You will know if you can get the license ahead of setting up all the other important documentations, such as business licenses and auto dealer bonds.
Getting an auto dealer bond
Now onto the next part of the application process which many people find confusing. You might not know what an auto dealer bond is at all. Auto dealer bonds, also known as DMV bonds or MVD bonds, are a type of surety bonds that protect your future customers from fraud and unethical business practices. It also makes sure you will operate in accordance with state regulations. In case of a claim against you, the surety bonds company you purchased the bond from will cover the financial losses. You will then have a legal responsibility to reimburse the surety.
The state of California requires you to post a $50,000 auto dealer bond for a regular car dealership. Wholesalers, meaning businesses who sell 25 vehicles or less per year, only need a $10,000 bond. But don’t worry, that doesn’t mean that you have to pay the whole amount. The price of the auto dealer bond is a certain percentage of the total amount of the bond. And, unlike that of other states, California’s auto dealer bond is a continuous one, so you don’t need a Continuation certificate each year.
Auto dealer bond costs
How much an auto dealer bond in California will cost you depends on various factors. Surety bonds companies will look into things like the size and location of your business and your personal credit score and determine the percentage of the bond you will have to pay. Your credit score is important because surety bonds companies assume a 0% loss ratio when underwriting your bond. The good news is that online surety bonds agencies work with a wide variety of partners, so you can get a good deal. You can submit everything online and get quotes and approval fairly quickly.
What if you have bad credit score? To be fair, California is a bit more stringent towards granting an auto dealer bond to people with bad credit, but it’s definitely not impossible. People with no previous credit history are also considered high-risk applicants. Luckily, Lance Surety Bonds has a bad credit bonding program that will let you find the most suitable deal.
Let’s hope you now have a clearer idea about the steps you need to undertake before obtaining a car dealer license and an auto dealer bond. Good luck with your operation!
You are just starting your contracting business or you have been successfully operating for a while. But then you are told your next project requires a surety bond, which you previously thought to be either an Egyptian hieroglyph or a rare Australian animal species. Luckily, it’s not that complicated and you don’t need to book a flight to the other end of the world to find out what it is. Let’s have a look at the types of surety bonds most frequently required from contractors – performance and payment bonds.
The Basics of Performance and Payment Bonds
Broadly put, surety bonds are a type of financial guarantee that involves three parties. The principal, or your business, is required the bond which makes sure you will be held responsible should you fail to meet the requirements of your contracts with the obligee(s). The third party, called the surety, is the surety bonds company, which issues the surety bonds, thus “bonding” the agreement. In case of a claim against the principal, the surety will compensate the obligee for the losses. After that, the principal is required to reimburse the surety for that amount.
Performance and payment bonds are types of surety bonds that fall under the category of contract bonds. In fact, they usually go together, so it’s not uncommon to see them under one name – performance and payment bond. Under the Miller Act of 1932, regulating government construction projects, and then the Little Miller Act, dealing with state projects, contracting businesses are required to put a performance and payment bond if they wish to work on public projects. Performance bonds are there to make sure your business will stick to the terms set out in your contract. Payment bonds, on the other hand, are protecting all the people you are working with – suppliers, subcontractors, workers, etc. They are a guarantee that you will be able to pay them for labor and materials as stated by the contract.
If you want to bid on public work projects, you will also need a third kind of bond, called a bid bond. It is there to ensure that in case you win the project, you will perform all the work at the price you put on your bid.
How to Get Bonded
Obtaining performance and payment bonds might sound like a big deal and a great amount of paperwork, but don’t be quick to get discouraged. The truth is that the whole process of approval, quotes and payment is now made easy through an online application. There’s no straightforward way of determining the cost of your surety bonds. It is determined by a variety of factors such as state-specific requirements and certain information about your business.
Typically, you’ll be required to pay anywhere between 1% and 5% of the total amount of the bond. In other words, if the total amount of your performance and payment bond is $100,000, you will have to pay a one-time fee of $1000 – $5000. Generally, for a project below $300,000, your percentage is calculated solely on the basis of your personal credit score. The process for more expensive projects is a bit more complicated and you will need to provide some additional details such as your business’ net profit. Companies who shows a higher net profit can qualify for a reduction in the price of the performance and payment bonds. Thus, if you are waiting for overdue payments, you might do wise to go ahead and collect them.1 2 3 … 21 Next »