Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
What Are California Construction Bonds?
California construction bonds serve two primary purposes. They ensure that contractors operating in the state adhere to ethical and legal standards, complying with state and local regulations and building codes. Additionally, they provide financial protection for licensing authorities, project owners, and the general public in cases of unlawful or unethical actions by contractors, allowing injured parties to recover monetary damages.
Construction bonds may be mandated at both the state and local levels, and they are often required by public or private project owners.
What California Construction Bonds May Be Needed?
In California, the most commonly required construction bonds include:
- Bid Bonds: Guaranteeing the accuracy of a contractor’s bid.
- Performance Bonds: Ensuring the completion of the project as per the contract.
- Payment Bonds: Guaranteeing payments to subcontractors and suppliers.
- Maintenance Bonds: Ensuring the quality and maintenance of completed work.
- Subdivision Improvement Bonds: Covering costs related to subdivision development.
Depending on the specific project type and location, additional bonds like right-of-way bonds or solar decommissioning bonds may also be required.
How Do California Construction Bonds Work?
Every California construction bond involves three key parties:
- The “Obligee”: This is the entity or authority requiring the bond.
- The “Principal” (Contractor): The contractor is obligated to secure the bond and pay valid claims.
- The “Surety”: The party guaranteeing payment of claims by providing funds to the principal.
While the legal responsibility to pay valid claims lies with the principal (contractor), the surety typically pays claims initially on behalf of the principal. The principal is then required to reimburse the surety. Failure to repay this debt can lead to legal action by the surety against the principal.
How Much Do They Cost?
The annual premium for a California construction bond is determined by multiplying the required bond amount, as set by the obligee, by the premium rate assigned to the principal through underwriting. This underwriting process evaluates the risk associated with the principal’s potential failure to repay the surety for claims paid on their behalf.
A high personal credit score is viewed as a low-risk indicator, resulting in a lower premium rate. Conversely, a lower credit score signifies higher risk, leading to a higher premium rate.
A well-qualified principal typically receives a premium rate in the range of 0.5% to 3%.
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