Bonding...What is it?

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I see quite a few contractors advertising they are "bonded and insured."  If someone is bonded, they are most likely a pretty good company.  Basically what bonding does is insure that the job gets done.  The most common type of bond is a performance bond.  Lets do an example. 

You are a subcontractor and want to bid on a relatively large commercial job and the GC or owner requires you to be bonded for that bid amount.  So you work up your bid and think it will be around a $100,000 job.  Well you now must have a performance bond that says you can complete that $100,000 job.  What the bonding company will do is ask for your financials, your job history, a list of your largest jobs, references, maybe some DNA, just kidding on the DNA.  Bonding companies are very thorough.  Basically they are assuring the GC or owner that you can complete the work you bid on.  If you were to bail out, and not complete the job, then the bonding company is on the hook to get it done.  Getting bonded is quite a process, so it benefits you to go ahead and complete the process before you ever really need a big bond.  It's like having a line of credit.  You didn't start out with a $500,000 line of credit, you probably started out with $25,000 and have built up to that larger amount.  Same thing with bonding.  You may not need a bond right now, but if you have it all set up and get the opportunity to bid a large commercial job, you aren't scrambling to get it done.

One last thing, you don't actually pay for the bond until you get the job.  So you aren't spending money to set this up for no reason.  However, for bonds over $250,000 you might incur some accounting expenses.  The bonding company will require CPA prepared financials.  But, if you are only shooting for a bond amount below $250,000 it should be very easy. 

My advice, even if you are not currently working big commercial jobs, go ahead and get the bonding process started.  That way when you are asked by one of your customers to bid on their new building project, you are ready to go. 

For more information on bonding, contact Sean Leigh.