How Much Do Performance Bonds Cost?


1% of the project value. If you are asked to present 50% performance bond and 50% labour and material bond, then 1.25% of the project value.


Performance Bonds Cost Calculation

If you are a new contractor or planning on becoming a contractor in the future, you should know that you are going to have to deal with a lot of bonds. These bonds are vital, because they are required by law in most providence and can give your clients peace of mind, while assuring them that you are going to fulfill the terms of the contract. Bonds can also help you better protect your business, so it is vital that you understand everything you possibly can about them. One of these bonds that you may be required to obtain is known as a performance bond. Below, you will learn more information about the performance bonds and how much they cost.


Company’s Experience

At the end of the day, there is simply no way to put a universal figure on a performance bond, as there are many factors that can affect the cost. Instead, you should familiarize yourself with the different factors that can raise or lower your cost.

experience of construction company

To start off, one thing that will affect the cost of your bonds is the amount of experience that your company has within the industry. Of course, if your company has been established for quite some time, you are going to look more reliable on paper, which will greatly lower the cost of your performance bond. This may not seem fair to newcomers, but bonds are all about trust and reliability.


Cash In Hand

Another factor that can affect the overall cost of your bond is the amount of cash that your business has in hand. This could also be known as collateral, even though collateral is not a requirement for performance bonds. If your company does not have much collateral, it is possible that you will be deemed as high risk. It goes without saying that a company with more collateral will be rewarded with a lower annual premium. In some cases, a high-risk company may have to seek out a specialized high-risk surety company in order to even obtain any type of bond.

cash available


Credit Ranking

Your credit score is always going to affect everything that you do with your business. This is especially true, when it comes to performance bonds. The first thing that a surety company is going to be before they issue you a bond is run a comprehensive background check on you and your company. Your personal and business credit ranking is going to play a major role in this whole processcredit standing for performance bonding.

Once again, if you have a low credit score you can expect to pay a higher annual rate. There are some cases in which a company’s credit score may be so low that a surety company might deny your application.


Business Operations

All companies that provide services to the community should be held to a high standard and that is exactly what the surety company will do. Once you complete the application and submit it along with all the necessary paperwork, the underwriter will immediately begin to do a bit of research on your business operation. Hopefully, you do not have any outstanding bids or contract obligations that were not met, since this could become the determining factor for a bond denial.

As a professional member of the building contractual industry, it is solely left up to how you operate your business. Most surety companies are willing to do whatever is necessary to assist an honest applicant, while weeding out those that have a history of failure.


What Is A Performance Bond?

A Performance bond is a very common type of surety bond which is issued after the bid bond. In fact, it is probably issued more often to contractors and subcontractors than any other type of bond. The performance bond basically acts as a security for the project owner, since it is capable of ensuring them that the contractor will abide by the terms of the contract. Most project owners will not even consider an unbonded contractor. The main reason for this is because a bond will protect the project owner from financial loss, in the event that the contractor fails to fulfill the contract obligation.


Performance Bonding Pre-Qualification Process

The contractor must seek out a professional underwriter, before applying for a performance bond. It is crucial to consider the company’s length of time in business, customer rating, and level of professionalism. Once you find the best surety company for you, it will be time to begin the performance bond qualification process. Prepare yourself for this process, because it is quite lengthy and will exert a lot of your energy.

Request an application that was designed specifically for performance bonds, since each surety bond has its own application. Take your time and make sure that you complete each segment of the application and never leave any question unanswered. If you have any questions about application, be sure to contact the underwriter to request some assistance. The more accurate the information that you provide, will aid in a smooth process.

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Other Frequently asked questions regarding performance bonds