This is the Bonding Company’s worst nightmare. In this 160th article of our surety sequence, we are going to cowl the conditions by which no Performance or Payment Bond is required! Some of the initiatives are huge and federal, some are personal, ALL are unbonded. Here we go!
As a degree of reference, it’s possible you’ll count on that federal, state and municipal contracts demand a Performance and Payment (P&P) Bond equal to the contract quantity. Normally they do. General Contractors working for a personal proprietor, similar to the development of an workplace constructing or condominium undertaking, might face the identical requirement. This can apply to subcontractors, too.
Federal Projects
This space consists of all branches of the federal authorities. Examples: Army Corps of Engineers, General Services Administration, Dept. of Energy, and so on. Their contracts are administered following the foundations of the Federal Acquisition Regulations (FAR).
The FAR says that no P&P bond is required on contracts below $150,000.
For contracts $150,000 and better that require safety, there are occasions when the bond requirement could also be diminished under 100% or waived solely. These embrace:
Overseas Contracts
Emergency Acquisitions
Sole-Source Projects
If the bond requirement is obligatory, the FAR lists acceptable options:
US Government (funding) Bonds
Certified Check
Bank Draft
Money Order
Currency
Irrevocable Letter of Credit
Here’s another choice: For contracts carried out abroad, the federal government can settle for a bond from a non-T-Listed surety. (Circular 570)
State and Municipal Contracts
The bonding necessities might differ by state, however typically their taste is just like federal.
Private Contracts
Anything goes. On personal contracts, the proprietor has full discretion to set the bonding necessities – together with no bond wanted. Keep in thoughts, the price of the bond is added to the contract, so the proprietor can avoid wasting cash by not requiring a bond. They might take different precautions to guard themselves. Some examples:
Require a retainage. These are funds which are held again from the contractor and solely launched when the undertaking is totally accepted
Lien releases could also be required every month to show suppliers and subcontractors are being paid appropriately
Funds Control / Tripartite Agreement – a paymaster is employed to deal with the contract funds
Joint checks are issued to the contractor and payees under them – to guarantee the funds attain the meant events
Physical web site inspections to confirm progress
The Nightmare
In these articles we discuss lots about how contractors can receive surety bonds and handle them. But it’s attention-grabbing to notice: A building firm might go without end, performing state and federal initiatives – and NEVER get a bond. It’s true!
If everybody did this, it could be the surety’s worst nightmare. But in actuality, there are monetary benefits to utilizing P&P bonds, so bonding normally is the primary alternative.
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