Do you run a construction company and want to know the cost to get it insured? If YES, here is a detailed guide on how to get your construction company bonded.

Clients who want to do business with your construction company will want some assurance that the project will actually be completed as planned and that you will follow all applicable laws and rules. That’s where construction bonds come in.

These bonds are like insurance policies that help protect your business from fraud, misconduct, business failures and other liabilities. With a well covered construction bond, you are providing your clients peace of mind because the bond helps to ensure that your company performs the work as agreed.

Not only do bonds give your clients peace of mind, but in many cases, bonds are actually required by government agencies using public funds for construction work or other projects. It’s very important to state there are several types of construction bonds used to guarantee construction, often required by the government for public jobs. Private businesses and general contractors bidding out projects to sub-contractors can also require them. These bonds are;

  • Bid bonds get your foot in the door by allowing you to bid on bonded jobs! They guarantee your bid is accurate and that the bonding company will provide a performance & payment bond if you are awarded the contract.
  • Performance bonds are what guarantees your work to the owner. The required “performance” of your work is outlined in writing in the contract.
  • Payment bonds guarantee that you’ll pay all sub-contractors, labourers, and suppliers.
  • Maintenance bonds provide a warranty on your work for a specific amount of time after the work is complete.
  • Supply bonds ensure suppliers deliver materials according to their contract.

Although you don’t need a license to work for a client, contracts often require you to have a bond as a show of good faith. Getting Bonded helps build trust with clients, which gives you an edge on the competition. It demonstrates that you have a history of responsible work.

It also helps you to obtain the licenses and permits you need to operate legally. Being bonded and insured is one of the best ways to show potential clients that you are a reputable contractor who does good work.

Getting your Construction Company Bonded and Insured

Even of you are new to the construction industry or have been working in it for years, getting bonded and Insured can get very confusing and daunting. To help make the process quicker and easier, we’ve briefly explained the various steps of getting your construction company bonded and insured in the united states of America.

  1. Verify why your company needs a surety bond

Before you contact a surety provider, you should know why you need to insure your company and the exact bond form you need along with the bonding amount. Having this information from the get-go allows the surety provider to issue your bond quickly and accurately. For instance, the form for a city of Detroit bid bond will differ greatly from the form used for a New Jersey contractor license bond.

To get this information, contact the government agency or project owner that’s requiring you to get a bond. Also note that by underwriting your bonds, your surety is vouching for your performance. If you fail to perform the work as specified, they are liable for meeting the obligations set forth in the contract.

Therefore, sureties will inspect your business carefully before bonding you. The most crucial component of your bonding capacity is your company’s financial stability. If you don’t have professional financial statements prepared by a certified public accountant (CPA), prepare them before approaching a surety.

Sureties will also look at your assets, cash flow, and credit history. Also note that a surety will evaluate your company’s longevity and capacity. If your company has a stable and long history, this will look favourable. Sureties are also interested in making sure you do not contract more work than you have the capacity for.

  1. Apply for a surety bond

Note that you can usually get a quote from bond companies for free or for a small fee. If the quote is favourable, you can apply for a bond using the bonding company’s form. You will have to provide information about your business and specify the amount of bonding needed.

You will also have to sign a credit release agreement. During this process, it’s very crucial you seek the right type of bond for your project. Have it in mind that the easiest way to find a surety provider is to search online for one that issues bonds nationwide.

This way, you’ll know that they can bond you no matter what state(s) you plan to work in. Once you contact a surety provider, you’ll have to answer basic questions about your professional work experience and personal financial history.

It all depends on the type of bond you need, you might have to provide your social security number so the surety can review your credit score. If your business has more than one owner, the financial credentials of all owners will be considered.

  1. Get a surety bond quote and pay for your surety bond

It’s necessary to state that the exact price you’ll pay for a surety bond will differ for a number of reasons. The very first thing you need to consider is the bond amount. A $50,000 surety bond will obviously cost more than a $10,000 surety bond.

Using the bond amount as a starting point, your surety provider will then calculate a premium that’s based on your financial credentials. Note that applicants with excellent credit typically pay 1 to 5 percent of the bond amount while those with poor credit could pay up to 20 percent. Once you must have gotten and approved the quote, you’ll probably be expected to pay the full premium upfront.

Have it in mind that some surety underwriters can offer premium financing to qualifying applicants. For the most part, though, you should be prepared to pay for your premium in full before you can get the bond. Once you’ve paid your premium, the surety provider will execute your bond and then send it to you.

  1. Verify the information on your bond and sign the indemnity agreement

The surety you file the bond with will mandate you verify all information are 100% accurate. Your bond will be rejected if;

  • Your business name is spelled incorrectly
  • Your business address is wrong
  • The bond amount is incorrect
  • Proper signatures are not present
  • If you find an error on the form, contact your surety immediately.

Once a surety approves your application, you will need to sign the indemnity agreement. This agreement governs what the surety is and isn’t liable for; a common provision is that you will be responsible for covering any claims and legal costs the surety incurs from your claims.

  1. Sign the bond agreement and send it to your client

Once you’ve signed the indemnification agreement, you can sign the legally binding bond agreement. After this agreement is signed by both the contractor and the surety, you should send it to your client (the obligee) for approval. Work can begin upon approval of the bond agreement.

How Much Does It Cost to Get your Construction Company Bonded and Insured

To some extent, the price of getting your construction company bonded and Insured will depend on the type of construction bonds you need. A bid bond which serves as a guarantee that the proposal you submitted is accurate and that the job can be performed as described. If you back out after winning a job or if your proposal is inaccurate, a claim can be made against the bid bond.

After you are selected to perform work, you will likely be required to obtain performance bonds, which are required by law for all public work contracts over $100,000. A performance bond is a promise that the work will be performed according to the contract. Then, the  payment bond guarantees that you will pay all subcontractors, labourers and specialists for their work on the job.

You may also be required to obtain a maintenance bond, which acts as a warranty for a designated time period after the work is completed. Due to the fact that construction bonds are based on a percentage of the project cost, your cost for obtaining them will vary from project to project. It will also depend on your credit score.

For example, for a contractor with poor credit who has a 3 percent rate on a $500,000 bond, the cost would be $15,000. However, if your company has good credit and can obtain a 1 percent rate on the bond, the cost will be only $5,000.

A smaller project of $150,000 would only run you $1,500 at that 1 percent rate, while a large $2,000,000 project would cost you $20,000. Meanwhile, note that the best way to keep costs down for your construction company is to maintain good credit and only accept projects that are at or below the costs your budget can afford to cover.


Have it in mind that surety companies in the U.S. won’t provide construction surety bonds for certain lines of work; some examples include overseas projects, jobs on Indian reservations, multi year construction jobs (three years+) and private home remodelling projects (unless being paid for by the government).

Most U.S. surety companies consider most of these project types too risky to bond. Surety bonds for public construction jobs such as performance bonds are legally binding guarantees provided by the surety company that you’ll complete a job according to the contract.

If you fail to complete the project properly, a claim can be filed which the surety will pay initially. However, you’re ultimately responsible for paying the surety company back for claims. In short, bonds for construction projects protect taxpayer’s dollars.

Note that with projects overseas and Indian reservation construction jobs, most U.S. surety companies will not consider writing surety bonds to guarantee their completion because the laws differ from state and Federal laws.

Also since the surety bond is legally binding and the surety company is first on the hook to pay bond claims, they don’t want to take the chance of providing surety bonds in a region where they’re unfamiliar with the laws and risk non-payment of claims.

Meanwhile, multiyear construction contracts that last for three or more years are too risky for surety companies as they are unable to determine whether a contractor will still qualify to perform the work that far down the road. For example, if a contractor defaults on another project while also working on a three year job, it could cause them to go bankrupt, which means the contractor wouldn’t be able to finish any other jobs they were working on.

Have it in mind that obtaining construction bonds for private home remodelling projects will be impossible, not because they’re too risky for surety companies, but as a result of being private jobs. All these are factors you need to consider if you’re looking to get your construction company bonded and insured.

Solomon. O'Chucks