How do you calculate costs of Bid/Performance Bonds?

What types of costs are expected when applying for a bid or performance bond?

[Riskwriter]

The cost of bonds can vary quite a bit based on a multitude of factors. Bid bonds essentially, cost nothing, however, in many cases bonding companies will charge $100 per bid, or an annual service type package which would cover all of your bid bonds for the entire year.

Performance bonds however, vary based on the trade you are in, financial strength, location and the bonding company being utilized. In general terms, a smaller contract $1,000,000 and under, and cost on average 1.5-2% of the contract amount. The cost of the bond decreases with the size of the bonds. In some instances, we have written performance bonds so large, that the cost falls under 1%. This would also be a contractor with a very healthy balance sheet.

On the other hand, i am aware of bonding companies charging a flat rate of 3.5-3% for the entire contract value. This tends to be work considered more hazardous, and possibly a contractor that could be financially troubled.

Hope that helps!

[evans619]

The rate used by the surety may vary by the type of construction. There are different classifications for different types of work. As an example, the industry has lower rates for supply contracts and certain service type contracts. Normally, general construction and trades are classified as Class B and take on a higher tier of rates, there are lower tiered rates for work classified as A-1 or A by the surety industry. A good surety producer can give you the normal range for your type of work. The actual rate you get in your construction category is dependant on your financial statement quality, your financial strength and how much of a user of bonds you are. The industry does not generally give their best rate to an infrequent user of bonds.

[Admin]

For general performance bond info and applications, see: Performance Bonds - Surety Bond Types