Surety Bonds: Pay Raise or Title?

Enjoy this scene from Cheers “Woody: Raise or Title?”

We laugh at Woody being duped.  He went after the wrong prize, just like some agents when it comes to commissions.

Agents face this choice: Commission percentage or commission dollars?

You might think a higher commission percentage automatically means higher dollars, but slow down Woody: It ain’t necessarily so! Let’s do the math.

Example 1) Bond Amount: $1,000,000

Premium rate: 2% = $20,000

Commission Percentage: 30%

Commission Dollars: $6,000  

Example 2) Bond Amount: $1,000,000

Premium rate: 2.5% = $25,000

Commission Percentage: 25%

Commission Dollars: $6,250  

Interesting! A lower commission rate can yield higher commission dollars when the premium rate is higher.  When the premium rate goes lower, the commission dollars drop even more.  A 1% rate with a 30% commission yields only $3,000 commission!

What about sliding scales?  At 30% commission, the 25/15/10 rate delivers only $4,050 in commission dollars.

OK so here’s the conclusion: Focus on commission percentage and you may end up being Senior Bartender like Woody. When calculating income, the bond rate makes you a winner!

Since 1979 FIA has been a dependable provider of Bid, Performance, Site and Subdivision Bonds.  Call us with your next one.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

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180. Completion, Performance, Site, Subdivision Bonds: What’s the DIF?!

Po’boy, hoagie, grinder, heroe, sub: You get the idea. Different names for the same thing. 

So what about these surety bond names?  Over the years I’ve heard them all used for the same transaction. But are they really the same?  No, No, Nooooooooo!  We will explain.

“Who’s” on first: (brief definitions)

Principal – party whose actions are the subject of the bond

Obligee – is the party protected by the bond

Surety – is the bonding company providing the guarantee

  • Performance Bonds: Issued in connection with a contract that is referenced in the bond.  Guarantees that the principal will complete the project on time and in compliance with all written conditions.  The obligee is the beneficiary of the bond and is the “project owner” of the contract (they are hiring the contractor and paying for the work).  The obligee could be a public or private entity. A Dual Obligee Rider could add parties with a financial interest – such as the construction lender. They would share in the bond amount in the event of a claim.
  • Completion Bonds: Issued in connection with a construction loan. These are issued directly to the construction lender and protect the loan.  The lender is not a party to the construction contract.
  • Another version is a Movie Completion Bond for the film industry – guarantees that the new movie gets produced and “in the can.”
  • Site Bonds: Issued in connection with a specific lot.  Could be a business owner modifying the company property, parking lot, driveways, etc.  The public body with jurisdiction over the job site is the beneficiary (obligee.) The bond promises that “public improvements” required by the planning board will be built at the principal’s (property owner’s) expense.  Such work is not paid for by the township.  The township is not party to a construction contract. The principal pays for the work out of pocket, or though a construction loan.
  • Subdivision: This is the same as a site bond, although on a larger scale. The difference is that it involves multiple sites all covered under one bond.  The bond promises that “public improvements” required by the planning board will be built at the principal’s (the land owner / developer’s) expense.  These improvements are later deeded over to the township – such as streets, curbs, lighting, water and sewer lines, etc. These bonds do not concern the building of homes or buildings. The guaranteed work is not paid for by the township.

It’s no surprise that folks use these terms interchangeably.  They all involve the contractor’s performance, but with a slightly different purpose.

You can assume all bond people know these differences.  But can you assume all bonding companies provide these bonds?  No, no,  nooooo!

Developers are the applicants for subdivision bonds, but any business can require a site bond. You need to know that FIA Surety is a leading provider of Site and Subdivision bonds. We write them and we’re good at it!

Next time you need a site, subdivision or performance bond, give us a call.

Steve Golia, Marketing Manager: 856-304-7348.

FIA Surety

Our Surety Agents Look Good

* Tuesday 6/19/18: We received an urgent submission.  A new client needed a $1 million final bond. We reviewed the file immediately and sent back our “road map to success.”

Complicating factors:

  • New file.  Short fuse.  All the basic analysis, credit reports, financial evaluation, indemnity agreement, etc. were needed.
  • Another surety had issued a bid bond, but because of unexpected developments, was unable to provide the final bond
  • There was a bid spread
  • The job specifications needed clarification regarding the surety obligation and possible requirement for a maintenance bond
  • Company year-end FS was a draft
  • Analysis regarding the collection of FYE Receivables was needed
  • Two other sureties reviewed this opportunity, causing the clock to run down for the client

* Wednesday 6/20: Agent provided additional info.

* Thursday 6/21: An engineering evaluation of the project was completed, including the adequacy of price.  Wednesday evening and Thursday, the underwriting review was completed. Bond is approved!

*Friday 6/22: Bond is issued and in the hands of the agent and contractor.

Actual agent comment: “Thanks so much!  Great job!”

Making our agents look good.  That’s what we do.

We can help you solve your next contract surety need. Call 856-304-7348

Secrets of Bonding #120: About the “T-List”


  1. You are interested or active in Surety Bonds (bid, performance & payment, etc.), and…
  2. You think the T-list is who you are following on Twitter, then… 
  3. You need to read this article!

What is the T-List?           (Click for mood music) 

For bond producers / agents, bonding companies and bonded contractors, Circular 570 (the official document title) is the list of sureties accepted on federal projects produced annually by the federal Treasury department. It is easily found online.

What does the list provide?

In addition to the name and address of the approved bonding companies, it states the maximum acceptable amount for any one bond (based on the surety’s financial position), and where the surety has indicated it is licensed.

Is a T-listed performance and payment bond required on all federal projects?T

Generally yes, although small and emergency contracts, and some service and commodity contracts are not bonded. The feds will also accept alternatives to a bond such a “cash” deposit held by the government, and tripartite agreements (which is a form of funds administration.)

Federal contracting officers also may have the latitude to accept a non T-listed surety on larger contracts if they deem it is in the best interests of the government.

Is a T-Listed bid bond required on federal projects?

Yes, when bid security is stipulated and a bond is the chosen method of compliance.  For example, a form of cash may be allowed at this stage, then a bond could be used for performance and payment.  Another twist, some federal projects call for a “bondability letter” instead of bid security.  This indicates the sureties interest in supporting the contract, but does not include a penal sum or any form of financial penalty.

Is the T-list required on state or municipal contracts?

Circular 570 is intended to be a federal requirement, although state and municipal owners may choose to stipulate it as a means of pre-qualifying the bonding companies.


When a surety is on the list, does the federal government “back” the bonding company for the benefit of other parties?

No, it is merely the government’s internal opinion regarding the condition of the surety.  The feds make no guarantee to 3rd parties regarding the viability of the surety, or the correctness of including them on the list

Can a surety fail while enjoying “approved” status on the list?


Are there any strong bonding companies that are not on the list?

Yes, many!  Only sureties that decide they want to be on the list are reviewed by the federal analysts.  They must submit their info and go through the process.  Some bonding companies are not intending to bond federal contracts, or may be ineligible for some reason.  They could be among the strongest sureties in the country, but would not be on the list.

Must subcontractors on federal projects use T-listed sureties?

It is not automatically required because these are considered private contracts between the general / prime contractor and the subcontractor. However, see next question…

What about private owners?

THE A-TEAM -- Pictured: Mr. T as Sgt. Bosco "B.A." Baracus -- Photo by: Herb Ball/NBCU Photo Bank
THE A-TEAM — Pictured: Mr. T

On private contracts, such as ALL subcontracts and projects with an owner that is not a public entity, the bonding requirements are at the owner’s discretion – including whether or not they even want a bond. They may demand the use of their own special bond form (some general contractors develop a subcontract bond form extra beneficial to them) and may stipulate a T-list requirement.

In some cases, the GC’s surety makes the subcontract bonding requirements.


In essence, always assume a Circular 570 surety is required on federal contracts.  The bond amount cannot exceed the limit stated on the list, and the bond should state the surety’s address as indicated on 570.

When other public entities require the T-list, such as state or municipal owners, it is mandatory because there is normally no flexibility in their specifications. However private owners set their own rules so subcontractors and GCs working for private owners may have the opportunity to negotiate away the T-list requirement if their viable surety is not on the federal list.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secrets of Bonding #118: Bonding Company = Girlfriend

I’ve been in the surety business for a long time.  As a student of the industry, I have observed the dynamics that occur between bonding companies and their clients.  My conclusion: Bonding Companies are like Girlfriends!

(My comments are written from a male point of view, but I’m sure you can flip this to be applicable if the reader is “non-male.”)

Think about relationships you’ve been in.  Don’t they always have a “love / hate” aspect? Jokes about relationships often capitalize on this reality:

Marriage is a three-ring circus. First the engagement ring, then the wedding ring, then the suffering.
– Milton Berle

My wife is a light eater … as soon as it’s light, she starts to eat. 
– Henny Youngman

“I am” is reportedly the shortest sentence in the English language. Could it be that “I do” is the longest sentence?
– George Carlin

And for the ladies:

What’s the difference between a boyfriend and a husband?
About 30 pounds.
– Cindy Garner

As very sophisticated types, we know how to deal with the technicalities of these relationships.  It isn’t always easy, but it’s worth it.   Bonding is pretty much the same!

Step One

How does a construction company gain the support of a surety?  It starts with a flirtation and then “getting to know you.”  The underwriter receives information about a bond that is needed. If there is a spark of interest, an application and financial statements are submitted. 

The construction company wants to look attractive:

  • Here is what we’ve accomplished!
  • This is how much money we’ve made!
  • We can really perform!

Think of this as the dating stage.  It is exhilarating and intense! There are probing questions and well-crafted answers.  Both parties want to achieve success and avoid failure / embarrassment. The same as in romance, the underwriter (girlfriend) will walk away if they find that the contractor (suitor) is dating other underwriters.  This is why bond producers may approach only one market at a time.  No girl wants a playboy who may be disloyal.

Ravishing Wedding Rings Clipart Also Appealing Wedding Rings Clipart Hd Pictures 4 Boostnow Wedd - ~ zxtzdb ~

Step Two

If the relationship blossoms, wedding bells may chime! They tie the knot with a pre-nuptial / general indemnity agreement that says “We’re in this together.  But hurt me and you’ll PAY.” 

Step Three

Eventually they become old married folks.  The contractor gripes that “he/she is never satisfied.”  More info, more questions, more money spent to keep the surety / spouse happy. It NEVER ends.  But the contractor needs the surety and works to keep things on track.

Is the underwriter frustrated?  Yes…  “I have to beat everything out of the contractor.  It’s like pulling teeth!” The contractor may be slow in providing the answers and info the underwriter needs to keep the bond account in healthy condition. “I thought we were in this together!”

There is an element of pain in the relationship, but both parties gain if they keep it together.

Yente  (Click for mood music) cupid

So where does the bond producer / agent fit in?  They are the dating service that brings the parties together.  They succeed by matching the contractor with the right surety.  The role as cupid continues as we shepherd the relationship forward, keeping the info flowing so bonds are available when needed.

The fact is, bonding involves more than paperwork.  It involves people, their perceptions and preferences.  The seasoned bond producer will make the match and guide the relationship forward for the benefit of all parties.  

Sureties, can’t live with them, can’t live without them.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secrets of Bonding #112: Net Worth – Feed the Pig!

When it comes to Bid and Performance Bonds, you may have heard that Working Capital is a deciding factor.  If the calculated amount on the applicant’s financial statement is insufficient, the surety underwriter will decline the bond.pig3

So what is Net Worth (NW) and how important is it for bonding purposes?  Let’s start with a brief description of what this is and where you find it in the financial reporting.  Funny thing about net worth: It is a measure of the company’s financial strength, but it is listed among the company’s debts! Hmmm…

Where Do You Find It?

NW aka “Stockholders Equity” is listed on the company Balance Sheet, which is divided into assets and liabilities (debts). 

The assets include cash in the bank, accounts receivable, buildings, equipment, etc.  The liabilities are accounts payable, bank and other loans, other debts, and (in a corporation) the Stockholders Equity. The NW or Stockholders Equity section appears at the bottom of the Liabilities column, below “Total Liabilities.”

What Is It?

Stockholders Equity shows the funds put in (loaned to) the firm by the stockholders such as Capital Stock, plus the portion of all past profits allowed to accumulate in the company (called Retained Earnings). These comprise the corporation’s NW.

Why is it a liability?  NW is a liability because it is owned by the stockholders, not the corporation itself. If the company shuts down and is liquidated, the NW goes the stockholders and the corp reverts to its original financial position: $0.

pig2Think of NW as a piggy bank that holds the company’s long-term, ultimate financial reserves.

Now let’s discuss what this has to do with surety bonds. Bond underwriters always evaluate the Working Capital amount.  And many place equal importance on the NW.  While it is true that a company can show good Working Capital but have no NW, is a lack of NW really a concern?  You may assume it is difficult to get a bank loan with no NW, the same applies to bonds. 

Surety underwriters are concerned about a company’s staying power if they don’t have financial reserves to help survive tough times.  When companies fail, there are bond claims – exactly what the underwriters don’t want!

Analysts will wonder “Why is there no NW in this company?” especially if it is not a new entity.  Has there been a lack of profitability, a failure of management, and therefore no profits to accumulate?

Our “Secrets” articles are usually inspired by the file activity we enjoy each week with our valued agents. Such was the case this week.  Here is the actual info from a financial statement that was the seed for this article:  “(  )” indicates a negative number.

STATEMENT OF EQUITY, September 30, 2015

Balance at January 1, 2015               $            0
Plus: Member’s contributions               33,616
Less: Net loss                                          (50,597)
Less Member’s distributions              (131,060)
Balance at September 30, 2015       $(148,041)

This report is describing the changes in one part of the NW.  They started with nothing, put in $33 thousand, lost $50 thousand this year, and on top of that, took out everything they put in and more!  What are they thinking?!

Q. If you are the bond underwriter contemplating the likelihood of this company’s survival, what might you conclude?

  1. Company management is weak?
  2. Their ability to continue may be doubtful?
  3. Instead of bolstering the company with additional funds, the owners are stripping it of assets – maybe with the intention of declaring bankruptcy?

A. All of the above!

Our conclusion is that Net Worth IS important. In bonding, the company is the applicant.  Its financial position indicates if management has achieved profitability and accumulated a war chest of funds to provide a strong foundation.  Without it, future credit may be unavailable, and the company may falter when facing difficulties.

NW is one of the critical factors underwriters, and all credit analysts, review.  It should be nurtured, protected and preserved.


FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secrets of Bonding #111: WIP Quiz

 When it comes to Bid and Performance Bonds, nothing may be required more often than financial statements and WIP schedules (Work In Process aka Work On Hand).  For mood music, click here.australian-whip

The WIP schedule could be required monthly for active bidders.  Certainly, the construction company management team monitors this critical info.  It tells the tale of how things are going, and where they’re headed. Profitability is revealed.  It is a preview of the upcoming Profit and Loss section in the next financial statement.  Poor results on the WIP schedule equal low Gross Profits on the next P&L – and maybe a net loss.

Let’s look at a couple of examples and see if you can spot what’s going on.  For the sake of illustration, we’ll use an abbreviated format.

On each of the following WIP schedules, compare the expected profit upon completion to the original profit estimate.

Joe Shmoe Construction


Current/Revised Contract Amount

Original Gross Profit Percentage

Billed to Date

Costs to Date (Including change orders)

Revised Remaining Costs to Complete







Is the current profit projection more or less than originally expected?

  1. More
  2. Less
  3. Exactly right


Global Construction and Gutter Cleaning


Current/Revised Contract Amount

Original Gross Profit Percentage

Billed to Date

Costs to Date (Including change orders)

Revised Remaining Costs to Complete







Is the current profit projection more or less than originally expected?

  1. More
  2. Less
  3. Exactly right


Dummenhappie Contracting


Current/Revised Contract Amount

Original Gross Profit Percentage

Billed to Date

Costs to Date (Including change orders)

Revised Remaining Costs to Complete







Is the current profit projection more or less than originally expected?

  1. More
  2. Less
  3. Exactly right


Got your answers?  Let’s go over these:

Joe Shmoe originally projected $100,000 profit (10% of $1,000,000).  Now it has nearly doubled! (602,000+202,000=804,000.   1,000,000-804,000=196,000)  “a. More”

Global starts with the same numbers (to help illustrate our point), but the costs are different.

(602,000+410,000=1,012,000   1,000,000-1,012,000= -12,000)  Not only has the profit margin slipped, it exceeds the contract amount resulting in a projected overall loss. “b. Less”

And finally Dummenhappie.  This one is amazing!  They are about ¾ of the way through the project (actually 70%), and right on target profit wise. The expected profits and total costs are exactly as predicted before they started the work.

(630,000+270,000=900,000   1,000,000-900,000=100,000)  “c. Exactly right”

Think about that. This answer “Exactly right” means prior to actually starting the project, they accurately predicted the exact number of labor hours.  Do you think the reality of the project might be somewhat different from the prediction?  Maybe they will hit unexpected obstacles and things will go slower (higher labor costs).  Or they may find more efficient ways to perform the work as it progresses (lower labor costs).  The cost of material purchases can also vary.  Get the point? It’s hard it imagine any project in which the costs can be perfectly predicted in advance.

indy-whipSo what’s going on here if Dummenhappie isn’t brilliantenluckie?  Our assumption is that the contractor has failed to RE-estimate the remaining costs to complete.  They are still relying on the original estimate – not analyzing the actual “costs to complete” during the life of the project.

Relying solely on the original cost estimate is a dangerous and weak practice.  The contractor may be unpleasantly surprised if unanticipated costs (such as labor inefficiency) have eroded the profit margin.  The worst part: They won’t know about it until the end, when it’s too late to make a correction!

Surety underwriters will detect if the remaining costs are not being reevaluated.  It reflects poorly on the contractor’s management practices.  It also means their profit projections may be totally unreliable.

The solution is to keep accurate records of the labor and material costs that go into each job, and periodically reevaluate (re-estimate) the remaining costs to complete. 

You can have a lot of fun with WIPS!  We’ve just touched on one part in this article. The analyst must not only review the profit trend, but also the method of calculation to confirm that accounting procedures are appropriate.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secrets of Bonding #110: Contract Additions – Is More Always Better?

USUALLY more is better. 

  • “Would you like more ice cream?”
  • “Congratulations on your raise!”
  • “Honey, we’re pregnant!”more2

The same is true when it comes to construction contracts.  It is not uncommon for the scope of work to be modified. The project engineer may have discovered a problem and they will pay the contractor to fix it.

There could be a desire to expand or enhance the project, resulting in an increased contract price.  These additions occur routinely. Sometimes there are also “deducts” meaning an amendment that reduces the contract amount.

Additions to the contract mean more revenues for the contractor – it’s a good thing, unless unexpected problems pop up.

In this discussion, we are talking specifically about bonded contracts.  Whether public or private, prime or subcontract, our comments herein apply.

more3Bond Amount vs. Contract Amount

Surety bonds, Performance and Payment Bonds on contracts, are all similar but may have important variations.  It is common for the bond to adjust upward to follow an addition in the contract amount.  This means if the $1,000,000 contract is increased by amendment to $1,200,000, the bond is increased so that 100% coverage is maintained.

Not only does the bond increase, the adjustment is usually automatic.  Most bonds say there is an automatic increase with no obligation to inform the surety of the change.

When the surety is required to accept the additional exposure, they are entitled to be paid for it.

The Downside of Contract Additions

What could possibly go wrong to spoil this perfect picture? You have a contract and Poof!” it just got bigger!  You provided a surety bond and “Wham!” it automatically adjusted to the new amount!  All good!

  1. One problem that can occur involves the additional bond premium. The subject is sometimes complicated, but the short version is that the surety will charge for the increase.  If the contractor fails to include the additional bond fee in the negotiation for the amendment, the bond fee will come out of their profits instead of being passed on to the project owner as is normal.
  2. A second issue can arise in connection with the automatic bond increase. Sometimes it doesn’t happen.  Some bond forms state that contract increases in excess of a stated percentage (e.g. 20%) must be pre-approved by the surety.  This is to prevent the surety from being pulled into a contract amount far above the original support level. If the surety refuses to accept the increase, the contractor will have the difficult / unpleasant task of seeking a new surety and possibly paying twice to bond the project!  Doesn’t get much uglier than that…


On the subject of the bond fee, some sureties demand payment when the contract increase occurs.  The thinking is, “We have the exposure now, why not get paid?”

Other companies may wait until the contract ends and net out additions and deducts, then charge for the net increase over the original bond amount.

You may also run into companies that charge for increases, but do not net out or give refunds for contract deductions.

If you want to know what to expect in these situations, you must ask for written answers from the surety.  These fine points are usually not stated in writing in advance – but are worth knowing.  With contract additions, it’s what you don’t know that can hurt you.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secrets of Bonding #109: Surety Letters – You Get What You Pay For

A Surety Letter can be used like a bid bond.  It may be required by private owners (and General Contractors in connection with subcontracts) as a means of assuring the contractor / bidder can provide a Performance and Payment Bond upon award of the project.  Private owners are not the only ones who use this procedure.  You may even run into this requirement on public jobs.

The Surety Letter is a statement of the principal’s (contractor’s) ability to provide a surety bond.  They may seem like an easy and useful alternative to a bid bond.  After all, it’s a letter. That has to be easier than a bid bond!


Theoretically, bonding companies are entitled to charge for bid bonds.  They are binding financial obligations and sureties occasionally pay out claims on these.  The industry practice, however, is to waive such charges.

When it comes to the surety letter, there is no financial obligation.  They are usually issued for no charge.  You can’t make a claim on one, and they are not a guarantee that a P&P bond will be provided.

So when a surety letter accompanies a proposal, exactly what does the project owner get?

The key points are:

  1. Sufficient Authority  Who wrote the letter? The best letters are written directly by bonding companies on their letterhead.  This is important because the author can bind the surety company. If they say they will provide a P&P bond, you can take that to the bank.  Less effective letters may be written by individuals who are not direct employees of the bonding company and who may not be able to legally bind them. Hint: The letter is stronger if a power of attorney is attached.
  2. Escape Hatch Typically these letters have a disclaimer that says there is no promise to provide a P&P bond. It may say the underwriter reserves the right to approve or disapprove performance bonds based on the client’s circumstances at the time the bond is requested. (Question: Do bid bonds have an escape hatch?  See below *)

What does all this mean? When a surety letter is used, it always proves one thing: The contractor has some form of a bonding relationship.

However, depending on the content of the letter, it may not include any form of commitment.  Such letters are an “indication of bondability” leaving the reader to speculate whether a P&P bond will follow.


To what extent can the project owner rely on a surety letter?  Considering most are only an “indication,” not much!  Bid bonds are binding obligations assumed by sureties, and claims can be filed against them.  If they both are available for little or no charge, which would you rather have?

* Answer: Bid bonds never contain an escape hatch.  If, upon award, an acceptable P&P bond is not provided, the surety will likely face a bid bond claim.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Secret #86: Exoneration Nation – Why Get Off Performance Bonds?

When it comes to performance bonds for contractors, the emphasis is always on getting them. They are normally required on public work. If you cannot bond the job, being a well-qualified low bidder is not enough. Once a contractor gets the performance bond, work commences and they may think they are done with the bonding company.  Actually, every bond has its own life cycle.  Issuance is the birth – but when and how does it end, and why should the contractor care? 

After a project is bonded, the surety may not require any further paperwork from the contractor. Sometimes the obligee wants the surety to provide a Consent to Final Payment or Consent to Release of Retainage. In such case the underwriter may ask for documentation regarding the health and status of the project. But absent that, the contractor may not think it is necessary to communicate with surety at the conclusion of the job. Why is doing so beneficial?

  1. Each bonded contract represents partial use of the contractors’ aggregate capacity. By officially closing out the project the surety capacity is restored. This is obviously important to enable the pursuit of new work.
  2. From the surety’s standpoint, any coverage for the warranty does not commence until the work is accepted and the performance bond is released. It is beneficial for both the contractor and the surety to start, and promptly conclude, the warranty obligation. While outstanding, the warranty is a risk for both.
  3. The third reason involves the payment bond. The recognition claims by suppliers of labor and material is affected by the last date of their supply or performance on the project. Officially closing the contract and performance bond creates one point of reference for evaluation of such claims.

Closing out the bond file is also important for the surety. It enables them to book any remaining unearned premium and concludes their liability. Both the contractor and surety are exonerated from the risk/obligation.

ex·on·er·ate   verb
past tense: exonerated; past participle: exonerated
– to relieve of a responsibility, obligation, or hardship
– to clear from accusation or blame

“The results of the DNA fingerprinting finally exonerated the man, but only after he had wasted 10 years of his life in prison.”

How to Close the Bond File

At the end of the project, whether requested by the surety or not, the contractor should obtain a letter from the obligee stating that the contract has been completed / accepted and the surety bond is released. The contractor retains a copy and sends this evidence to the bonding company. It’s just that simple.

Contractors should assume the responsibility for this action because not all sureties are diligent in requesting closure evidence for their files. It is true that in every case, it is beneficial for the contractor to submit this information to the bonding company.

Exoneration Nation: Be part of it!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.