Surety Bond Prequalification
When making a bid on a construction project, contractors may be asked to submit a surety bond along with the bid. A surety bond protects the project owner with a guarantee that the project will be completed as contracted, and ensures that all laborers and suppliers will be paid.
Contractors who want to bid on upcoming construction projects may want to get prequalified with a surety bond company. The surety company can determine a contractor’s bonding capacity, which sets the limit on how high of an amount a contractor can get bonded for. This, in turn, affects the amount a contractor can bid on a project.
Types of Bonding Capacity
There are two types of bonding capacity: a single limit and an aggregate limit.
- A single limit sets the amount a contractor can bid on a single project.
- An aggregate limit sets the total amount a contractor can bid on multiple projects at a single time. This includes projects that are bonded and not bonded.
Prequalification also determines the type of work a contractor is approved for, and the geographical areas they can work in.
What Affects a Bonding Capacity?
Surety underwriters need to analyze a contractor’s risk before determining the bonding capacity. Several factors are considered in making sure the contractor has the ability to pay current and future obligations. These factors can include:
- Contractor’s personal credit score
- Financial statements showing the success of the business, including cash flow. If bidding on jobs over $1 million, statements need to be prepared by a professional CPA.
- Business experience
- Experience of personnel
- Working Capital
- Net worth
- Review of past projects
Once a contractor is prequalified by a surety bond company and knows his bonding capacity, he is more prepared to bid on projects. He can also work to improve his bonding capacity so he can grow his business and bid on larger projects in the future.
What Does a Bid Bond Cost?
At SuretyGroup.com, contractors who qualify can receive bid bonds at no cost. If you win the bid, we can assist you in obtaining any Payment and Performance bonds required by the project owner. The premium you pay will be dependent on several factors including the bond amount and your personal and business financials. Contact our Surety Bond Specialists for a free quote that fits your specific situation.
How to Get Bonded
SuretyGroup.com’s Surety Bond Specialists are here to get you started with the bid bond process. You can download our Contractor’s Bid Bond Kit that includes all the forms you need to get bonded. Contact our Surety Bond Specialists with any questions you may have, and get a free, no-obligation quote. Email firstname.lastname@example.org, or call 844-432-6637.
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