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Does your Florida company provide work for public and private entities? If it does, you probably need to provide your customers with a guarantee that the work will be performed in accordance with the contract specifications, and getting a surety bond is a good way to let a client know that you can perform the work that’s specified in the contract. Let’s take a look at what surety bonds are and why you need one.
Understanding Surety Bonds in Florida
A surety bond is an agreement between your company, your client and the surety company. These three parties are known as the obligee, the principal and the surety.
- The Obligee – The entity that needs the work performed.
- The Principal – The business that is performing the contracted work.
- The Surety or Guarantor – The insurer that is guaranteeing the validity of the surety bond and that the contracted work is performed in accordance with the contract.
Surety bonds are designed to protect the financial interests of the obligee and the principal. If the requirements of the contract are not fulfilled, the surety bond pays an amount of money to the financially harmed entity.
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Types of Contract Surety Bonds in Florida
There are six types of contract bonds in Florida, including bid bonds, performance bonds, payment bonds, maintenance bonds, supply bonds and subdivision bonds.
- Bid Bonds – These are needed when a company puts in a bid for a project. It guarantees that if the bidder wins the contract, they will fulfill the additional obligations of the contract. If the bidder refuses or fails to fulfill those obligations, this bond pays the difference between the original bid and the bid that’s ultimately chosen.
- Performance Bonds – A performance bond is the next step in the bidding process. The performance bond is what helps ensure that the work will be completed in accordance with the contract.
- Payment Bonds – Payment bonds are often combined with performance bonds. Payment bonds help ensure that the contractor will issue all the payments for labor and materials as soon as the job has been completed.
- Maintenance Bonds – Maintenance bonds can also be combined with performance and payment bonds. This bond helps ensure that the contractor will fix any defects with the work after the project has been completed. This is especially useful for new builds and renovations where some materials may be installed incorrectly or found to be defective.
- Supply Bonds – Supply bonds are useful for businesses that order a substantial quantity of supplies and products. These bonds guarantee that the delivery of supplies will be performed on time and at the contracted price.
- Subdivision Bonds – These bonds may be required when a property developer plans on building a subdivision. Subdivision bonds help ensure that the developer adheres to its promised infrastructure improvements, like roads, sidewalks and street lights.
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Florida Surety Bond Requirements and Costs
Businesses that receive surety bonds are vigorously vetted by the bond issuer. This is to ensure that the business is financially secure and has the ability to complete the project on time and within the proposed budget. For that reason, companies that issue surety bonds, like Fearnow, look at the business’s credit score, working capital, completed projects, the internal management structure, and their financial statements.
Businesses can expect surety bonds to cost a percentage of the total price of the bond. That percentage can range between 1 and 15 percent. This means that a 1 million dollar bond could cost as little as $10,000 or as much as $150,000.
Why Do Companies Need Surety Bonds?
If you want to start competing for government projects or publicly funded projects, you’ll need to be able to acquire a surety bond. This is because government-funded projects are typically vast in scope and expensive. Some of them may even be phased projects, meaning they require several steps that must be completed in succession and according to their individual completion dates.
Surety bonds aren’t exclusive to publicly funded projects. In some cases, a private company may require a surety bond. This is especially true if the privately funded project is being financed by loans. In this instance, the financial institution may require the bond in order to protect its interests.
Finally, if your business hires subcontractors, you may want the subcontractor to take out a surety bond. In this case, the surety bond would help ensure that the subcontractor fulfills their obligations for the part of the project they are completing.
Getting a Surety Bond from Fearnow in Florida
If your business needs a surety bond in order to bid on a project or get approved for the project, we can help you at Fearnow. In addition to surety bonds, we also offer business insurance, including commercial car insurance, general liability, cybersecurity insurance and workers compensation.
To learn more about our surety bonds and to get a quote for insurance, give us a call at 813-689-8878.
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