General Contractors Using Surety Bond For Profits

  • June 8, 2024
  • 4 min read

Licensing and Surety bonds
How do surety bonds help general contractors? Well, if you’re a building contractor or general contractor, you have two or three ways that a hazy bond affects your business. First of all, when you get licensed, you probably need to get a surety bond in order to get your UH Contractor License put through. You might need insurance as well, but a lot of times you need a security bond along with your license application, your training, your fees, etc. This is important, and you want to make sure that you constantly renew it every couple of years when it’s expired. Because if your license has been found to have no surety bond, it can be canceled. And sometimes, if it’s canceled, it’s harder to have the bond reactivated because you have to answer questions on the bond application. Did you ever have a license canceled? And if you did, that might make the bond more difficult or more expensive.

Contract Requirements and Bond Preparation
The second way a bond can help you is in many contracts. When you’re doing a contract with a potential client, you’ll need a shin bond. Now, we’re going to talk at the end about whether it doesn’t require a surety bond and how you can make a profit off of a surety bond. If you are doing a contract with a client and they require you to be bonded, get the quote for that bond in advance, but don’t purchase it until you get the contract. Because once you buy it, that money’s out of pocket. You can get a quote, you can get the underwriting, and you can get all that done in advance so that if your contract is picked up by the client, you can have the bond issued immediately. We have seen a lot of clients that have been negotiating and bidding for a contract, a building contract. They get selected, they win the bid, and then they have to get the bond. But because it’s a complicated contract, the bond might take 15 or 30 or 45 days, and if you don’t get that contract completely filled in and bonded within a certain period of time, you might lose it. We’ve had some clients lose contracts because they started the process too late. So, you don’t have to pay anything. Get that bond quoted based on the contract, get it underwritten, and that way, if you need it, you can just pull the trigger and get it.

Strategy for Non-Bond-Required Contracts
Now, what if you are bidding on a contract that does not require a security bond? Here’s what I would do: go ahead and get a quote for a shity bond based on that contract regardless. So, if you’re bidding on a $2 million, you know, bridge repair or $2 million building of a commercial building, take the specs of the contract along with the other information the bonding company needs, submit it for approval, and get a quote for that bond. Maybe the bond might be, let’s say, $2,000; just pick a number out of the air. Build that amount into your bid. It’s not going to be that much compared to the bid. Build it into your cost structure when you submit your bid. Also include that your bid is fully bonded for non-performance, for completion, whatever the criteria that you want to bond for is.

Here’s why: you may find that the client could see your bid, and it might be a little higher than the lowest bid, and they might accept it because yours is bonded and they’re not going to be hung out to dry by a company that has a low bid and then disappears halfway through the project. By adding that as a selling tool, you may not have to be the lowest bidder. It’s not going to cost you any money because you built it into your contract, and you can stand out among the other ones. It’s unlikely that many bidders will do this. So, if let’s say they get 10 bids and only two of them have surety bonds, they might say, Well, let’s eliminate the other ones from consideration because they’re all about the same and go with the one that’s a surety bond. They could justify the extra expense because now they have less risk and less downside liability for not having the contract fulfilled. It’s a way that you can stand your contracting company apart to get more deals and get more work to do for you and your employees.

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