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Is it too high for prime contractor to require me as a sub to carry a surety bond at 100% of the project cost?

CaliforniaBond Claims

On a $3.5m project, is it too high for prime contractor to require me as a sub to carry a surety bond at 100% of the project cost?

6 replies

Sep 28, 2021
This is a question of whether your contract requires it. If your contract requires you to get a bond, you will need a bond. The number won't matter.
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Sep 29, 2021
Typically, if a GC requires a payment/performance bond, it is only for the sub's scope of work, and typically the GC pays the premium.
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Sep 29, 2021
A general contractor can’t force a sub to obtain a bond unless it’s required under the contract. It’s not unusual for a sub who’s doing a large percentage of the work on a public project to be required to post a bond under the GC’s prime contract with the public entity. I don’t typically see this on private jobs. You’ll need to review your contract carefully to see if this is a requirement.
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Sep 29, 2021
The contract is under negotition and has not been signed. Yes, the GC asks for a $3.5m surety bond, but it appears California has a much lower standard of $15k. What premium would be charged for a surety bond of that amount? The vendor is a small company, so it can't absorb a lot of risk and costs that the GC would be able to abosrb.
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Sep 29, 2021
The 15K bond is a license bond, which is different than a payment/performance bond. The premium, I believe, is around 1 - 2% depending on your financials. An issue will be whether your financials will support a 3.5MM bond. Again, in my view, the premium on the bond, if required under the contract, should be paid by the GC, which issue you can insist upon since you are in negotiations at this point. And, the bond amount should be commensurate with your scope of work, only, but if the GC is paying the premium it is not a concern. If you would like to discuss, you can call me at 949-356-6464. I can also refer a surety . Thanks, Andrew
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Oct 6, 2021

It looks like you’re confusing the California $15K license bond with a performance bond. These 2 are very different. The performance bond is generally in the amount of the total contract price because it’s guaranteeing that you’ll perform all of the work in the contract. If you don’t, the bond will pay the GC or owner to complete your work and then seek reimbursement from you for any money they have to pay out. The cost of the premium for the performance bond depends varies from bonding company to bonding company and also on how solvent you are, and your prior bonding experiences. It’s a good idea to check out the cost for the performance bond ahead of time so you can add the cost to your bid.

If you’re not going to provide the performance bond, you’ll need to delete this from your subcontract if they agree to accept your bid without it.

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