This is actually the Bonding Company's worst problem. In this 160th article of our surety series, we will take care of the situations in which no Functionality or Payment Bond is needed! Some of the projects are big and federal, many are private, ALL are unbonded. Below we go! As a point of reference, you may expect that federal government, state and municipal agreements demand a Performance and Payment (P&P) Bond comparable to the contract amount. Normally they do. General Technicians working for a personal owner, including the construction of your office building or apartment project, may face the same requirement. This can apply to subcontractors, too.

This is actually the Bonding Company's worst problem. In this 160th article of our surety series, we will take care of the situations in which no Functionality or Payment Bond is needed! Some of the projects are big and federal, many are private, ALL are unbonded. Below we go!

As a point of reference, you may expect that federal government, state and municipal agreements demand a Performance and Payment (P&P) Bond comparable to the contract amount. Normally they do. General Technicians working for a personal owner, including the construction of your office building or apartment project, may face the same requirement. This can apply to subcontractors, too.

This is actually the Bonding Company's worst problem. In this 160th article of our surety series, we will take care of the situations in which no Functionality or Payment Bond is needed! Some of the projects are big and federal, many are private, ALL are unbonded. Below we go!

As a point of reference, you may expect that federal government, state and municipal agreements demand a Performance and Payment (P&P) Bond comparable to the contract amount. Normally they do. General Technicians working for a personal owner, including the construction of your office building or apartment project, may face the same requirement. This can apply to subcontractors, too.

Federal Projects

This place includes all branches of the federal government. Cases: Army Corps of Technicians, General Services Administration, Dept. of Energy, and so forth Their contracts are administered following the guidelines of the Federal Purchase Regulations (FAR).

The A LOT says that no P&P bond is essential on deals under $150, 000.

To get contracts $150, 000 and higher that want security, there are times when the bond requirement may be reduced below 100% or waived entirely. These include:

Overseas Deals

Emergency Purchases

Sole-Source Assignments

If the bond requirement is imperative, the FAR lists suitable alternatives:

US Government (investment) Bonds

Certified Check

Lender Draft

Money Order

 Forex

Irrevocable Letter of Credit rating

Here's another option: For contracts performed in a foreign country, the government can accept a bond from a non-T-Listed surety. (Circular 570)

Express and Municipal Contracts

The bonding requirements may differ by state, but generally their flavor is similar to federal.

Private Legal agreements

Anything goes. On private contracts, the owner has complete discretion to established the bonding requirements - including no bond needed. Keep in mind, the expense of the bond is included with the contract, so the owner can save some money by not needing a bond. They might take other precautions to guard themselves. Some examples:

Require a retainage. These are money that are held backside from the contractor and only released when the project is fully accepted

Lien releases may need each month to confirm suppliers and subcontractors are being paid appropriately

Money Control / Tripartite Arrangement - a paymaster is employed to take care of the agreement funds

Joint checks are issued to the builder and payees below them - to ensure the cash reach the intended celebrations

Physical site inspections to verify improvement

The Major problem

In these articles we talk a lot about how precisely contractors can obtain surety bonds and manage them. But it is interesting to note: A building could go forever, carrying out state and federal tasks - without get a bond. It's true!

In the event that everyone did this, it would be the surety's worst nightmare. But in reality, there are financial advantages to using P&P bonds, so bonding usually is the first choice.

Steve Golia is the National Surety Director for Great Midwest Insurance provider, an A-8 carrier focusing on deal surety.

The company provides Performance and Payment Provides with speed and creativeness, up to $10 , 000, 000 per contract.