Contract Bonding

Contract bidding has a unique language, and it can be tricky for a veteran contractor who doesn't know how to speak it. Because public works contracts almost always involve a bond – a legally binding agreement to deliver what you promised – it is crucial to learn everything you can about bond requirements. Gaining this knowledge allows you to enter into agreements you can realistically uphold, and can help you gain a reputation as a reliable contractor.

What is a Surety Bond?

Most federal contracts, and all contracts $100,000 or more, require surety bonds. Because many veterans bid on government contracts, it is important to become surety bonded before starting your business.

The surety bond is based on a three-party relationship:

1. The Surety. The Surety, the bond company, is the "go-between" of the contractor and the project owner. If the contractor does not complete the project as specified in the terms of the contract, the Surety covers the remaining, or entire, cost of the project to prevent loss.

2. The Obligee. The Obligee is the project owner of the contract and the party that the surety bond protects. Because the Obligee is the most at risk for loss, the Obligee is allowed to finalize the language of the contract. For contracts between veteran owned businesses and the federal government, the federal government is the Obligee.

3. The Principal. The Principal is the party responsible for completion of work according to the contract. In order to begin work on a specific project, the Principal must provide the necessary bonds as required by law and the type of contract. For contracts between veteran businesses and the federal government, the veteran owned business is the Principal.

Types of Surety Bonds

Most surety bonded contracts require that you, the Principal, provide all of the following bonds:

  • Bid Bond: This guarantees that, if you are awarded the job, a payment bond will be furnished.

  • Payment Bond: Protects suppliers, contractors, and laborers by ensuring that they will get paid according to the contract terms. If you fails to pay, those parties are protected by the Surety.

  • Performance Bond: This bond, required in essentially all government contracts, is your legal agreement to perform all work specified in the contract.

Help with the Surety Bond Process

Because any contractor without surety bonding can be denied some of the best government contracts, it is best to get assistance with bonding from an experienced resource.

If you would like to discuss bonding with a VetUSA business consultant, or be referred to a pre-qualified bonding agency, please contact us today at 855-4VETUSA (option 2) or complete our online form.

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