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If you work as a contractor, the federal government requires you to carry an additional type of business insurance called a surety bond. Most states, local municipalities and private entities also enforce this requirement. The purpose of this is to ensure that a project owner receives compensation from the surety company in the event that you default on your contract or another contractor is available to take your place.

According to the Small Business Administration, contractors bidding on any federal construction contracts with a value greater than $150,000 must have the surety bond in place prior to placing the bid.

The Different Types of Surety Bonds

Because there are four main types of surety bonds, it is essential to work with an independent insurance agent who understands your business and the type of bonds you need. These include the following:

  • Ancillary bond: This guarantees that all issues related to the contract, with the exception of performance issues, are performed as expected.

  • Bid bond: This type of surety bond ensures that people bidding on a contract will provide the required payment and performance bonds when awarded the contract.

  • Payment bond: As its name implies, this bond guarantees payment to all suppliers and subcontractors who completed work on the project.

  • Performance bond: This bond guarantees that the work specified in the initial contract is completed in a satisfactory manner and in accordance with its terms.

 

Surety Bonds are Typically Affordable

Depending on where you obtain your surety bond, the fee is typically less than one percent of the total of the contract fee for ancillary, payment and performance bonds. There is usually no fee for a bid bond. To find a surety bond, check with an independent insurance agent who already sell business insurance.

Get the coverage you need. Call Corbett & Associates Insurance Agency at (805) 496-1424 for more information on Thousand Oaks surety bonds.

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