Bonds for Excavation/Demolition Contractors

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When Might Excavation / Demolition Companies Require Bonding?

Clients or project managers may stipulate that hired excavation and demolition contractors be bonded with various bonds, particularly for significant or critical projects such as municipal, state, or federal contracts. Additionally, some general contractors may require bonding as it offers additional financial security and recourse if the contractor fails to meet contract terms or causes damages during excavation or demolition activities.

Types of Bonds an Excavation / Demolition Company Might Need

Excavation and demolition professionals may need a variety of bonds, some of which are common and may depend on the nature of their work. These bonds include the following:

Bid Bonds provide financial protection to the owner or project developer if a bidder is awarded a contract but fails to enter into the contract and/or provide the required performance and payment bonds needed to move forward. Read more
Performance bonds guarantee that the contractor will complete the construction according to the contractual obligations. If a contractor fails to do so and is defaulted, the project owner can make a claim on the bond to access funds that can be used to pay another contractor to finish the job. Read more
The payment bond guarantees the payment of all subs and suppliers on the project. Read more
A Maintenance bond protects the owner of a completed construction project for a specified time period against defective materials and workmanship that could surface later if the project was completed incorrectly. Read more

A contractor must purchase a subdivision bond when working on upgrades for a local government’s projects. The bond guarantees that workers perform their responsibilities according to the terms mentioned in the bond. These bonds are sometimes referred to as site improvement bonds, completion bonds, or plat bonds. Read more

A mechanic’s lien or contractor’s lien as it is also referred to, defends contractors and denotes the issues they have with the people who have hired them. Liens of this nature are in support of contractors, subcontractors, suppliers, and builders that have provided services to a property. These services can include renovations, construction, furnishings, and more. Read more
Any number of things can happen during a federal construction project that potentially could prevent the project from being completed or end up costing taxpayers more than originally budgeted. Construction bonds (also referred to as contractor bonds) provide financial protection for the federal government. Read more

What an Excavation and Demolition Company Should Look for With Bonding

When examining bonding options, excavation and demolition companies should prioritize several critical factors. For instance, a higher bonding capacity offers increased flexibility when bidding on public works projects, enhancing competitiveness within the market. It’s also vital to evaluate the bonding capacity, including both single project limits and aggregate bonding capacity, to ensure the ability to handle larger projects and support sustained growth. This ensures the company has the necessary financial backing to fulfill contractual obligations with confidence.

Someone in this industry should also consider the cost of bonds, including the rating structures provided by surety companies. Opting for competitive rating structures can help minimize bond costs, ultimately improving project profitability.

Excavation and demolition companies should also seek surety providers with a strong reputation, like Surety Bond Professionals. By carefully assessing these factors, companies can make informed decisions to secure the most suitable bonding arrangements for their business needs.

How Much Do Bonds Cost for Excavation/Demolition Contractors?

The premium for any bond is the result of two figures: the bond amount and the premium rate. The obligee has established the required construction bond amount for the excavation/demolition company, and the surety assigns an appropriate premium rate to each applicant.

The premium rate is based on the surety’s credit risk exposure as measured by the company’s business financials, prior construction experience, and personal credit score. The surety will pay a valid claim as an extension of credit to the principal, who must then repay the resulting debt according to the surety’s credit terms. Credit risk is the risk of the borrower, the principal, not repaying the lender, the surety.

A stronger underwriting case results in lower risk for the contractor, leading to a reduced premium rate. Typically, a well-qualified principal will be offered a premium rate ranging from 0.5% to 3%.

How Do I Get Setup for Bonding as an Excavation / Demolitions Contractor?

Generally, there are two ways to apply for a construction-related bond:

First way Fast Track Application

This is an application which is determined by the individual’s credit history. A Fast Track application can be used for projects or contracts under $600,000. The fast track application should be submitted with the following items:

  • Copy of Contract or Bid Specs
  • Job Cost Breakdown

Second way Standard Bond Application

This application is to establish a larger surety program for projects over $600,000. The Standard Bond Application will require:

  • Financial Statements
  • Brief Questionnaire

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