Contract Surety Bonds
You don’t hear about government entities using stimulus funds on uncompleted public works projects despite numerous contractor failures during the recent economic downturn. Why is this? Public works projects have a third-party guarantee that ensures that projects are completed and that all bills to subcontractors and suppliers are paid. This guaranty is offered by a surety company and the guarantee is known as a surety bond.
The surety concept is not new. Originally it involved an individual providing surety for another individual. As a result of federal taxpayer losses on uncompleted construction and service contracts in the late 19th century, there have been several pieces of legislation enacted to protect taxpayers from these types of losses. The late 1800s saw the advent of well-funded corporate sureties stepping into the surety bond marketplace. They served as a mechanism to encourage trade over long distance.
Currently, the Miller Act at the national level and “little” Miller Acts at the state level require a surety bond in place on all public projects. However, they do have varying thresholds as to when they are required. For instance, a performance bond is not required on federal contracts under $100,000.
An entity looking to obtain surety “credit” must pass a rigorous prequalification process, much like obtaining a bank loan. The surety evaluates the contractor’s credit, financials, and experience to determine if it will extend surety credit. This process also serves to assist government entities in making sure that only the most qualified contractors are able to bid on government work.
As the New England Regional Director of the National Association of Surety Bond Producers, we work in conjunction with the surety industry to make certain smaller and minority contractors get qualified to participate on government contracts. If you have any questions or think you may be a candidate for a contract surety bond, contact Michael Regan at Cleary Insurance.
At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. We are members of the National Association of Surety Bond Producers (NASBP), the professional organization for agents that also specialize in surety bonding. Give us a call today at 617-723-0700.