Bonds for Water and Sewer Utility Contractors

When Might Water and Sewer Contractors Require Bonding?

Water and sewer contractors may be required to provide construction bonds for municipal, state, or federal contracts. Some general contractors may also request bonding to enhance financial security and recourse if the contractor fails to meet contract terms or pay subcontractors/suppliers.

Types of Bonds a Water or Sewer Contractor Might Need

The types of bonds required by sewer and water contractors may vary depending on the scope of their projects and specific contractual obligations. However, some common types of bonds that sewer and water contractors may require include:

Bid Bonds provide financial protection to the owner or project developer if a bidder is awarded a contract but fails to enter into the contract and/or provide the required performance and payment bonds needed to move forward. Read more
Performance bonds guarantee that the contractor will complete the construction according to the contractual obligations. If a contractor fails to do so and is defaulted, the project owner can make a claim on the bond to access funds that can be used to pay another contractor to finish the job. Read more
The payment bond guarantees the payment of all subs and suppliers on the project. Read more
A Maintenance bond protects the owner of a completed construction project for a specified time period against defective materials and workmanship that could surface later if the project was completed incorrectly. Read more

What a Water/Sewer Contractor Should Look for With Bonding

When evaluating bonding options, water and sewer contractors should prioritize several factors. Firstly, a higher bonding capacity offers increased flexibility when bidding on public works projects, enhancing competitiveness within the market. Additionally, it’s crucial to consider the cost of bonds, including the rating structures provided by surety companies. Opting for competitive rating structures can help minimize bond costs, ultimately improving project profitability.

It’s essential to assess the bonding capacity, including both single project limits and aggregate bonding capacity, to ensure the ability to handle larger projects and support sustained growth. This ensures contractors have the financial backing necessary to fulfill their contractual obligations with confidence.

Water and sewer contractors should also seek surety providers with a strong reputation. By carefully evaluating these factors, contractors can make informed decisions to secure the most suitable bonding arrangements for their business needs.

How Much Do Bonds Cost for Water and Sewer Contractors?

Water and sewer construction bonds are sold for a premium that is the product of the bond amount established by the obligee and the premium rate assigned by the surety. The surety sets the premium rate for each applicant on a case-by-case basis after assessing the potential risk inherent in agreeing to extend credit to the principal for the purpose of paying a claim.

As the guarantor, the surety will pay a valid claim on behalf of the principal, who must subsequently repay the resulting debt in accordance with the surety’s credit terms. The primary risk is the surety not being repaid by the principal. That’s why construction bonds are approved primarily based on business financials, prior construction experience, and personal credit score.

The better the underwriting case, the lower the risk of the contractor, so the lower the premium rate. A well-qualified principal typically will be assigned a premium rate in the range of 0.5% to 3%.

How Do I Get Setup for Bonding as a Water and Sewer Contractor?

In the realm of construction surety bonds, there are generally two avenues for application:

First way Fast Track Application

This is an application which is determined by the individual’s credit history. A Fast Track application can be used for projects or contracts under $600,000. The fast track application should be submitted with the following items:

  • Copy of Contract or Bid Specs
  • Job Cost Breakdown

Second way Standard Bond Application

This application is to establish a larger surety program for projects over $600,000. The Standard Bond Application will require:

  • Financial Statements
  • Brief Questionnaire

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