Lance Surety Bond Associates, Inc.

Photo credit: jef safi (writing)

Contract bonds (also known as construction bonds) are required in most jurisdictions. A lot of times the benefits are overlooked and they’re seen as a hassle. But in fact, contract bonds provide essential guarantees to both parties involved in the contract.

Contract Bonds Provide Value to Clients:

They ensure the original bid.

A bid bond is a type of contract bond that guarantees a contractor will stick to the terms they originally bid. This type of surety bond is submitted along with the bid, guaranteeing the entire process, from start to finish.

They require the contractor to accept responsibility for mistakes.

We all know a project can require maintenance even after it’s complete. A maintenance bond serves as a warranty against defective materials or shoddy workmanship. Maintenance bonds are not always required, but it’s never a bad idea to protect your company from sticky situations once the contract ends.

They provide the contractor with a backup if it defaults.

If your contractor defaults, a payment bond will make sure everybody involved in the project gets paid and you don’t get saddled with that debt.

They guarantee that the client performs the work according to contract.

This is where a performance bond comes in. It’s another required bond that you’ll be happy to have on your side should the unfortunate event occur that the contract is not carried out correctly.

Contract Bonds Provide Value to Contractors:

The client feels safer and more assured.

Being backed by a contract bond provides a level of assurance to the client that the contract will be honored. Having this financial guarantee will help facilitate a better working relationship.

They guarantee completion of the project.

Sometimes you get near the end of a project and realize your company simply doesn’t have the resources to complete it. It happens to the best of companies, but you still want to see the project completed and know that all your hard work didn’t go to waste.

They provide assurance for subcontractors and vendors.

As you’re gearing up for a project, the best subcontractors and suppliers may want to see proof that you are holding a bond. It also serves as an assurance to them that they’ll receive their due compensation.

HB 1536: Public Officials and License Bonds – Casino Gaming

Casino gaming in Hawaii will be authorized and regulated through this bill. The bill will create the Hawaii Gaming Control Commission. A surety bond in the amount of 25K must be posted by each member of the Commission. This will secure the faithful performance of the duties of office. This bill will also require licensure and a 200K surety bond to be posted for casino gaming operators. This bond will guarantee that the licensee would comply with the proposed law and any rules adopted to implement it.

SB 1528/HB 1651: Public Officials & License Bonds – Shipboard Gaming

This Senate and House Bill will allow for casino games to be played on board ships. Through this bill the Hawaii Gaming Board will be created to oversee the gaming operations. Each board member will be required to post a surety bond in the amount of $25,000 to secure the faithful performance of their duties. A license will be required as well to operate and maintain a gaming ship. The owner will be required to obtain the license as well as a $200,000 license bond to secure that the licensee will faithfully make the payments, keep records, reports and conduct games of chance in compliance with the applicable laws and regulations. The surety’s aggregate liability would be limited to the amount specified in the bond.

HB 6323: Public Officials

This bill will implement the new federal health care law to establish the state of Connecticut’s health care exchange system purchasing health care plans. A surety bond in the amount of $50,000.00 must be posted by the Connecticut Health Exchange to secure the performance of the duties of office. A blanket position bond covering each director, the Executive Director of the Exchange and its employees will be accepted instead of individual bonds.

For contractors and business owners in a wide range of industries, surety bonds are an unavoidable part of operating their organization. However, that doesn’t mean they are forced to take on high-cost bonds which can cost hundreds or thousands of dollars more than what is necessary. The key to securing low-rate surety bonds is being informed about the process and knowing what is taken into account when determining your cost. Here are a few things to be aware of before you approach a surety company looking for a bond:

1. Check your credit

The first thing any surety company will do when you walk through the door is run a credit check on you and/or your company. Just like having a good credit rating can get you lower interest rates on car loans, they can also get your company lower costs for bonds. Before applying for a surety bond, check your credit and make sure everything is correct and up-to-date. One or two bad marks can deliver a serious blow to your overall rating. Fortunately, reporting errors or mistakes can generally be cleared up with just a few phone calls.

2. Balance your books

A large part of bonding consideration, especially when it comes to contract bonds, lies in whether or not your company has the capital necessary to complete a job. Have your in-house accountant comb through your company’s financials to make sure you actually have sufficient funds to see the contract through. If necessary, free up capital by selling off investments to keep a majority of funds liquid and easily accessible. Following responsible accounting practices at all times will ensure that you are able to present an accurate picture of your company’s assets to a bonding company.

3. Toot your horn

Having a well-established network of references and contacts can go a long way to getting you a lower bond rate. The amount of experience a company has in the industry where they are seeking work weighs into their overall credibility and reliability to carry out the contract. To apply for a bond, ensure you have proof of previous work which has been completed satisfactorily.

4. Make your choice

Different bonds come with different rules and regulations associated with them. The sheer number of different bond types can be overwhelming, so consult a professional to ensure you are applying for the bond best suited to your company. In many industries there are well-established standards for the kind of bond necessary, but new business owners may need a unique bond specially-tailored for their operation.

5. Read your rules

Bonding guidelines can vary widely by state, but some basic online research should give you a good overview of what you are required to obtain. Unfortunately, you don’t get brownie points for securing a surety bond worth more than your state’s required minimum amount. Save yourself additional costs by knowing the exact amount of bonding you need to operate in your state and locality. You can find this information online or call your state’s licensing board for details.

HB 6307: Third Party Administrators

This will adopt a modified version of the NAIC model for the third-party administrators of insurance benefits. These people will have to be licensed, and those who are administrating governmental or church self insured plans will have to post a surety bond in the amount of $100,000 or 10% of the aggregate amount of self-funded coverage under governmental plans or church plans handled in Connecticut and all additional states which are authorized to conduct business. This bond will have to respond to claims that originated from the Connecticut Insurance Department and any other state insurance regulatory authority in the states licensed to conduct business.

HB 6305: Public Officials

This creates the SustiNet Plan as a government sponsored health plan for the residents of the state of Connecticut. This program will be run by the SustiNet Authority, whose board members will have to post a surety bond in the amount of $50,000 to secure the faithful performance of their duties. This bond will have to be issued from a surety bond company licensed in the state of Connecticut. A bond covering all members would be accepted.

SB 703/ HB 6212: License Bond – Used Automobile Dealers.

This bill will reduce the bond requirement for used automobile dealers from $50,000 to $20,000.

SB 490/860: Subdivision Bond

This bill will allow for the performance bond required for a subdivision or site plan application to be enlisted before or after the subdivision or site plan is recorded on the land records of the municipality. This is so long as no work begins until after the bond is posted.

SB 9: Court Bonds – Confiscated Animals

Under current law the owner of a confiscated animal must post a surety bond for the costs of the care of the animal for 30 days. SB 9 will repeal the law requiring the owner to post a surety bond to prevent its disposition by an impound agency. Animals may be confiscated for the owner’s neglect, abuse, cruelty or because the owner illegal possession of a dangerous dog.