Should You Be Paying Less for Your Surety Bonds?


How do you get a better rate on your bonds? It could be as simple as asking.

If you pay, for example, a flat rate of 2% for several years and during this time your business has grown in size and profitability, you could very well be eligible for a lower rate.

Let's do some simple calculations: take a hypothetical job with a contract value of $ 150,000 and a completion time of less than a year. At a flat rate of 2%, you expect to pay $ 3,000. At a rate of 1.8%, you would only pay $ 2,700 for a saving of $ 300. It's simple, right?

Assuming your surety company uses flat rates and you qualify for this lower rate, this scenario sounds like a no-brainer. It is definitely worth discussing with your surety broker.

But here's where the bail rate game gets a little more cloudy …

Many bonding companies do not offer flat rate pricing and only use slippery rate scales, where, for example, you can pay $ 25 for a thousand dollars worth of contract value for the first $ 100,000, and then $ 15 per thousand for the next $ 400,000 of contract value.

At first glance, this 2nd "level" at $ 15 sounds like a nice drop. But redo the calculation, using the same hypothetical work of $ 150,000. Using a $ 25 "slide", you would pay $ 2,500 for the first level plus $ 750 for the second level at $ 15 / mile. Total: $ 3250.

With this slide, you will actually pay more for bonds for this job than with a fixed rate of 2%. In fact, it would only be for jobs over $ 200,000 in contract value where you would benefit from savings on the $ 25 slide compared to the 2% fixed rate.

What to do? Calculate the average size of your work for the last 3 years. Ask your bond broker to run bonding cost calculation examples based on average job size. Your broker can then apply some standard rating structures to find the one that best suits your business based on the size of your typical job, then negotiate a better rate with your surety company if you are eligible.

If you get the best rate, you will put more money in your pocket at the end of the year, all other things being equal.

Beware of unscrupulous brokers who will tip a very low rate in front of a contractor to win the client, only to increase it for the next job. Make sure to get the rate breakdown proposed in writing from the bond itself – not from the broker.

Also pay attention to less than brilliant bonding companies. While this is certainly not a guarantee of longevity in this business, a bonding company with a rating of "A-" or better from AM Best Company is a good place to start the verification process. In addition, many project owners require an "A" rating or better to bid for the work.

An experienced surety broker should be able to guide you through this process, getting the best rates from quality bonding companies.

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