Bonds for Plumbing Contractors

When Might Plumbers Require Bonding?

Plumbing contractors may be required to post bonds on municipal, state or federal contracts. Some general contractors may also require bonding as it provides extra financial security and recourse if the plumber doesn’t fulfill the contract terms or pay subs/suppliers.

Types of Bonds a Plumber Might Need

While the specific types of bonds a plumber might need can vary depending on the nature of their work, some common types of bonds that plumbers may require include:

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

What a Plumber Should Look for With Bonding

When considering bonding options, plumbers should prioritize several key factors. Firstly, it’s crucial to assess the bonding capacity, both in terms of single project limits and aggregate bonding capacity, to accommodate larger projects and sustain growth. This allows plumbers to take on more substantial contracts, knowing they have the financial backing to fulfill their obligations.

Additionally, having a higher bonding capacity provides plumbers with more flexibility when bidding on public works projects, increasing their competitiveness in the market. Another essential aspect to consider is the cost of bonds, including the rating structures offered by the surety company. Opting for competitive rating structures can help minimize bond costs, ultimately improving the overall profitability of projects.

Plumbers should seek a surety provider with a strong reputation. By carefully evaluating these factors, plumbers can make informed decisions to secure the most suitable bonding arrangement.

How Much Do Bonds Cost for Plumbing?

How much a given principal will pay as the premium for a bond depends on the required bond amount and the premium rate. The obligee establishes the required bond amount, or “penal sum,” which is the maximum that will be paid out on a valid claim. The premium rate is set by the surety through an underwriting assessment of the risk involved.

As the bond’s guarantor, the surety agrees to extend credit to the principal for the purpose of paying a claim. The standard practice is for the surety to pay a valid claim initially and then be repaid by the principal according to the surety’s credit terms. The primary risk is that the principal might fail to repay the surety for the credit extended in paying a claim on the principal’s behalf.

The principal’s creditworthiness, as measured by their business financials, prior construction experience and personal credit score, are the key determinants of the premium rate. The better the underwriting case, the lower the risk of the contractor, so the lower the premium rate. A well-qualified principal typically will be assigned a premium rate in the range of 0.5% to 3%.

How Do I Get Setup for Bonding as a Plumbing Contractor?

Generally, there are two ways to apply for a construction surety 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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