Secrets of Bonding 160: No More Performance Bonds


This is the worst nightmare of the Bonding Company. In this 160th article of our bonding series, we will cover situations in which no performance or payment bond is required! Some projects are large-scale and federal, other private and all unrelated. And it's gone!

As a reference, you can expect federal, state and municipal contracts to require a performance and payment bond (P & P) equal to the contract amount. Normally they do it. General contractors working for a private owner, such as building an office building or an apartment project, may be subject to the same requirement. This can also apply to subcontractors.

Federal projects

This area includes all branches of the federal government. Examples: Corps of Army Engineers, General Service Administration, Ministry of Energy, etc. Their contracts are administered according to the rules of the Federal Acquisition Regulations (FAR).

The FAR indicates that no P & P bond is required for contracts under $ 150,000.

For contracts of $ 150,000 or more requiring collateral, the bond requirement may be reduced to less than 100% or fully waived. These included:

  • Overseas Contracts

  • Emergency Acquisitions

  • Single Source Projects

If the bond requirement is mandatory, the FAR lists acceptable alternatives:

  • US government bonds (investment)

  • Certified check

  • Bank Draft

  • Money order

  • Motto

  • Irrevocable letter of credit

Here is another option: for contracts made in a foreign country, the government may accept a surety bond. non-T-List bond. (Circular 570)

State and Municipal Contracts

Link requirements may vary from state to state, but their flavor is generally similar to that of the federal government.

Private Contracts

Everything is fine On private contracts, the owner has full discretion to set bonding requirements – including any bonding requirements. Do not forget that the cost of the deposit is added to the contract so that the owner can save money by do not requiring a link. They can take other precautions to protect themselves. Some examples:

  • Requires a restraint. These funds are retained by the contractor and are released only when the project is fully accepted.

  • Privilege releases may be required each month to prove that suppliers and contractors are properly paid

  • Fund Control / Tripartite Agreement – a payer is used to manage the contract funds

  • Joint checks are given to the contractor and the beneficiaries below them to ensure that the funds reach the intended parties.

  • Physical inspections of the site to check progress

The nightmare

In these articles, we talk a lot about how entrepreneurs can obtain bonds and manage them. But it is interesting to note: a construction company could lead an eternal life, carry out state and federal projects – without ever getting bail. This is true!

If everyone did that, it would be the worst nightmare of the deposit. But in reality, the use of P & P bonds has financial advantages and the first option is to establish links.

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