HOW MUCH IS A CONSTRUCTION BOND?

COUNT ON STOKES SURETY BONDS

contractor holding his bid documents for tender date

Brief

There is no doubt Texas construction companies and contractors have some of the highest risk exposures. While Texas is mostly known for its profitable oil industry, the state does fairly well in the construction industry.

As a member of this industry, you know the importance of being “bonded.” This is a term utilized to describe construction firms and other companies protected by surety bonds.  Texas is not a state that requires construction contractors to be bonded.

However, some Texas towns, counties, and cities do require construction contractors to be bonded. The construction bond is the most common surety bond utilized in this industry. Even if you are located or operating in an area that does not have a surety bond requirement, it is recommended to obtain a construction bond for each new project.   

TOO LONG; DIDN’T READ (TL;DR)

Although construction bonds are not as expensive as they may seem, there are numerous factors that can either increase the costs significantly or reduce them significantly depending on your circumstances.

Common factors include tax liens, bankruptcy, low credit score, breach of contract, poor work history, bond amount, construction project size, number of open contracts, construction site location, and construction bond history.

Two of the common types of construction bonds are bid bonds and performance bonds. The cost of a bid bond can range anywhere from 5% to 20%, however, for a small project, it can result in a flat fee of $100 or $200. Whereas, the cost of a performance bond ranges from 1% to 3% of the total contract value.

CONSTRUCTION BOND PREMIUMS

One of the biggest concerns consumers have with construction bonds is cost. What these individuals do not understand is surety bonds are generally not that expensive.




To learn more about the costs of different types of construction bonds, please take a look at the following links:


  Cost of Bid Bonds

  Rates of Bid Bonds

  Asking Price of Bid Bonds

  Cost of Performance Bonds



However, there are factors that can drive up the cost. These factors may or may not apply to your case but it is still important to known what they are off the top of your head. What are the factors that impact construction bond premiums?



Tax liens – Construction companies struggling with debt oftentimes find themselves facing tax liens, a government claim on tangible property, such as a commercial building, home, land, furniture, jewelry, inventory, and equipment. 

Bankruptcy– A single bankruptcy may drive up your construction bond premium by at least 3 percent. Bankruptcy cannot always be avoided, regardless, each filing will have a negative impact on your credit history.

Low Credit Score – Surety firms rate construction contractors with low credit scores “high risk,” resulting in higher premiums. Depending on how low your credit scores are, it may be impossible to get approved for a construction bond. Fortunately, some surety companies are willing to overlook low credit scores. Remember, surety companies assess both the professional and personal credit scores of each applicant.

Breach Of Contract – Each time a construction company breaches a contract, its odds of getting a good deal on a construction bond gradually decreases by a small fraction. It is crucial to complete each and every contractual agreement to avoid these issues in the future.

Poor Work History – Construction contractors will poor work histories should expect to pay higher construction bond premiums. These contractors are rated as “high risk” which will result in higher monthly premiums.

Bond Amount – It is only natural to pay higher premiums on construction bonds of higher value. The premium amount will depend on the amount of the bond.

Construction Project Size – Construction projects are rated by size – small, medium, and large. Smaller projects will not require as much security as larger projects. Again, the size of the construction project will reflect on the monthly premiums.

The Number Of Open Contracts – It is not unusual for construction firms to have multiple projects going on at the same time. This is especially true for large construction firms. The higher number of open contracts, the higher the monthly premiums.

 Construction Site Location –  The location of the construction site can also drive up the cost of construction bond premiums. Like surety bond applicants, construction site locations are rated on a scale. Working in high-risk (crime-ridden, heavily congested, and dangerous) locations comes with more risks, which will result in higher monthly premiums. Low-risk locations do not have as many risks, which are always taken into consideration during the application process.

Construction Bond History – If you have a history with a surety firm, your monthly premiums are guaranteed to be lower. However, this only applies to the successful fulfillment of contractual agreements. If your surety bond history includes third-party claims and payouts, it will drive up your monthly premiums because your company will be classified as “high risk.” However, things are very different for contractors with no previous surety bonding history.

HOW SURETY FIRMS RATE APPLICANTS

As mentioned previously, surety firms like Stokes Surety Bonds, utilize unique rating systems to fairly calculate premiums. Each construction bond application is scrutinized carefully, utilizing the rating system. If one or more of the above factors apply to you or your construction company, your premiums will be slightly higher than the norm.

It is important to note, a single mark on your record may not drive up the premium to a point where it is considered “unaffordable.”  But, more than one mark will definitely place your construction company in the high-risk category.

Try as you may, your company will not always be able to stave off contractual agreement issues. To learn more about contractual agreements for different types of construction bonds, please take a look at performance bonds in a contract.

Always keep a door open for communication between you and your clients. When an issue arises, bring it to the client’s attention immediately. Most consumers will understand and gladly work with you to eliminate the issues, so the project continues forward.  

IS A CONSTRUCTION BOND WORTH THE EXTRA EXPENSE?

The pros of a construction bond outweigh the cons by a ton. With government regulations, a large number of competitors, and loads of risk exposures, it only makes sense to be bonded. Surety firms have worked diligently to simplify the construction bond application process. The entire process from start to finish can take as little as 24 hours and no longer than seven days in minor cases.  

When you consider the many benefits of a construction bond, the extra expense is virtually nothing. The mere fact that being bonded can minimize your exposure risks says everything about construction bonds.  Approaching a construction project without a contractual agreement and surety bond is like jumping off the Empire State Building without a parachute or diving into the deepest ocean without a life jacket.  

STAYING A STEP AHEAD OF COMPETITORS

Depending on location, the construction industry can be extremely competitive. Large metropolis areas can have anywhere between one and 10 or more construction firms in operation. Suburban areas will only have about half this amount while rural areas are lucky enough to have one. Whatever the case may be, being a construction contractor in metropolis and suburban areas means you need to remain competitive to be successful.

How is this possible in such a competitive industry? A great place to start building your competitiveness is with a construction bond. Bonded construction companies are always a step ahead of their competitors. Long-time, experienced consumers are not willing to risk it all when investing in construction projects.

When searching for a local construction company, these consumers go straight to the top. Being bonded will earn you more and bigger construction projects. Maybe more than you could ever imagine. So, ask yourself again is a construction bond worth the extra expense? The answer to this question is obvious. Construction bonds are the difference between having no clients and having continuous projects going on simultaneously.  

FREE QUOTES – KNOW YOUR CONSTRUCTION BOND PREMIUMS IN ADVANCE!

Our free construction bond quote takes the guesswork out of the process. Complete and submit the form in as little as five minutes and receive a quote in 24 hours or less. Our goal is to continue writing construction bonds until every construction contractor in the state of Texas is bonded. 

Our free quote form has been simplified to ensure a quick and easy process for all construction companies and contractors operating in the state of Texas.  Remember, a free quote is not the actual amount you will pay monthly, it is only an estimate. However, it will provide an estimate to help you determine if a construction bond is within your budget.  

GO DIRECTLY TO THE CONSTRUCTION BOND APPLICATION!

Experienced construction contractors are welcome to skip the free quote process by completing and submitting the construction bond application. Our construction bond agents work extended hours to serve the Texas construction industry. Whether you need to get bonded or just have a few questions that need answers, we are only a phone call away.  

NEED A CONSTRUCTION SURETY BOND FOR A JOB? COUNT ON STOKES SURETY BONDS