Do I Need A Surety Bond?

Published by admin | Filed under Bonds

When it comes to committing to a construction project or renovation, the average homeowner has a lot to consider.  Between obtaining financing, finding a reputable contractor, and dealing with the lifestyle disruption that these projects inevitably cause, you’re probably overwhelmed and don’t have much time to consider other issues, especially the specifics of your potential contractors’ bids.  However, surety bonds are an important part of your project and absolutely deserve a bit of consideration, though many homeowners aren’t actually sure of the purpose they serve. 

Think of a surety bond as a bit of extra financial security that protects you when you’re undergoing a renovation or brand new construction project.  Essentially, these bonds assure that you, the homeowner, is protected from contractor error and omission and that the contractor will perform the work to the standards detailed in your contract.  A specific type of bond, a license and permit bond, also makes sure that your contractor will act ethically and pay any subcontractors, laborers, and material suppliers they retain in the course of your project.  There are also bid bonds and performance bonds, each providing their own protection to you during the construction process.

So how do you know if your project qualifies for a surety bond?  Simply put, under the Miller Act, the federal government requires surety bonds for all projects over $100,000.  However, if your project is between $25,000 and $100,000, you’ll want to check with a contractor or other, neutral party to make sure that there are no requirements (the Miller Act used to require that all projects have a surety bond.  When the Act was amended, alternative requirements were put in place to protect homeowners undertaking projects totaling less than $100,000 but more than $25,000).

The surety bond requirement includes new construction, so chances are good that if you’re planning on building a house (or even an outbuilding like a garage), you’re going to need a surety bond.  Most renovations will also require a surety bond.  Thankfully, getting a bond is a routine and straightforward process for your contractor and he or she will handle the process of obtaining it.  You will be responsible for the cost, which is generally half of one percent to four percent of the total contract amount and due when the bond is executed.  The cost and details of the surety bond is nearly always written into the bid and the contract.  For more information on surety bonds, please see http://www.sio.org/