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Surety Bonds in Construction

With any construction project comes a set of risks. For example, gambling on a contractor whose level of commitment or qualification is uncertain or who could become bankrupt halfway through the construction process can be a costly decision. The Surety Bond is a credit instrument that guarantees the contractual obligations between the contractor and the owner. Surety Bond credit can be very risky to provide, as a result, it is important that a trusted relationship is built and maintained between the Contractor, the Surety Bond Agent and the Surety Company.

Construction Assurance and Surety Bonds

Surety bonds provide financial security and construction assuranceconstruction by giving project owners the confidence that contractors will perform the work and pay specified subcontractors, laborers, and material suppliers. A surety bond is a risk transfer mechanism where the surety company assures the project owner (obligee) that the contractor (principal) will perform a contract in accordance with the contract documents.

Obtaining Surety Bonds for Construction Projects

Any reputable Surety Bond company will have to establish your credit-worthiness to the Surety Company before a bond can be issued. While different Surety Bond agents will look for different items before obtaining your Surety Bond, some items providers may require can include:

1. A history of your company, work history, organizational chart, and key-employee resumes.

2. A Corporate or Strategic Plan detailing current and future 1-3 year company plans and objectives. This plan should include information about the Buy-Sell and Continuity Plan of the construction company which will provide the Surety an understanding the future management team.

3. Financial statements from the past three year ends prepared by a certified public accountant, or acceptable alternative along with the most current in-house financial information.

4. Work on Hand information for the past three year ends and a current in-house work on hand.

5. Bank Relationships and Credit References.

While these differ from company to company, it gives you a general understanding of what is needed before obtaining a Surety Bond for any construction project.


Topics: Construction