Performance Bonds? Who Pays? HO Or Contractor?

Melissa

A customer emailed and wants us to get a Performance Bond for his kitchen remodel- approx $70K job. I checked with our ins agent and he told me they cost $3K for every $100K. Gulp. Waaay too much money for me, so I emailed the customer back, and tried to assure him that it would not be needed.

But if he still wants it, my ins agent said we would be the one's to pay for it. I don't get that. It's the HO's ins policy for if we walk on the job and take their downpayment isn't it? Shouldn't the HO be the one's to pay?

jensenconstruction

When a customer requests a performance bond from us we let them know that this will be an additional cost and write it into the contract or if contract is already signed we write a change order. Don't forget to add your overhead and profit onto the cost of the bond.

maj

I must appologize beforehand this time, but forgive my ignorance again. I thought every GC had to be bonded in Cali.?

I just thought you guys figured that into your bids. The customer would be paying for it without even knowing it.

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RobertF

The customer pays for everything, you just need to change your pricing.

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Grumpy

It's simply marked into the job cost as part of the overhead, or what I like to mall non labor/material job expenses. I know before bidding if I need a performance bond or not so I know if I need to mark it into the cost or not.

$3k seems steep based upon my experience. Call someone else and see what they have to say. I would simply tell the customer that normally they mark their insurance requirements into the job costs and you weren't aware of this requirement therefore you are going to have to raise your contract valuation by $***.xx

On a flip note, you know now that this guy is a pain in the ass.

jensenconstruction

All contractors in cali including speciality contractors have to have a $10,000 license bond. but performance bond are not required

maj

Gotcha, Thanx

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bmartin

3% for a performance bond in California isn't a bad price. If they didn't ask before you bid the job I say it's on them.

PipeGuy

The customer pays for everything you provide- it's as easy as that.
You provide a performance bond that assures the owner that you'll finish the improvements in accordance with the contract requirements (your performance). A performance bond does not assure the owner that you'll pay all your bills; that's what a payment bond does.

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kgphoto

In CA a client can ask for it, or insist on it. Either way, they pay for it. It is optional, and if they want it, they pay for it.

jwbond

The cost of the performance bond ALWAYS should be built into the price of the contract. However, you are going to have a tough time finding someone to bond a private contract unless it is for a large corporation that requires bonds regularly like Walmart.

a1propertyclean

Maybe the client is looking for Course of Construction insurance instead of a performance bond?

All our clients pay for any insurances, bonds, licenses, and permits on their jobs and we mark it up to allow for the time spent procuring them.

Linda

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jwbond

It is possible...

Many people say they want you to be "bonded" when it is not possible and they don't even know what bonding entails.

Grumpy

In addition many of the guys with "licensed bonded & insured" plastered on the sides of their truck or yellow page add also have no idea what a bond is. It's just the thing to do and hell if it says it on his truck, it must be true!

jwbond

You hit the nail right on the head!

Many want to be "bonded and insured" for marketing reasons, but you can not get a surety bond if no one is requiring it of you. They are three party agreements: the principal (contractor), the carrier (bonding company), and the obligee (whoever is requiring it).

I often wonder if half of the people that have "bonded and insured" even have a bond! If they do, I assume it is for a license bond they were required to post.

Double-A

Or they were bonded out of county and the judge didn't take their driver's license. This time.

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jwbond

hah! Wrong kind of surety bond

However, you might be surprised that most surety bond applications do not ask about criminal records even though the carrier try very hard at underwriting the contractor's "charactor". Seems like a no brainer to me!