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With Surety Bonds, Timing can be critically important. There are certain things that must happen first. You can’t get them out of order. Here are some examples. Do you know which comes first, and why?
Cover the answers with a piece of paper as you scroll down. (Paper is white stuff people used to write on. Really!)
- Bid Bond / Performance Bond
- OK that was an easy one. They get harder. Bid bonds always come first – if there is one. Not all performance bonds are preceded by a bid bond. Negotiated projects would be an example.
- Bond execution / Indemnity Agreement execution
- The Indemnity always comes before the bond. It is the promise to pay back the surety in the event of a claim / loss. Sureties want this protection in place before they assume any risk.
- Surety Consent to Final Payment / Obligee Status Inquiry Form
- The Status Inquiry form comes first. It is the obligees statement that the work is acceptable. The surety requires to see this before agreeing to release the final payment. If there are unresolved issues, the contractor must address them before the last contract funds come over. (That’s true motivation!)
- Payment Bond Release (exoneration) / End of Lien Period
- Since the bond guarantees the payments that may be owed during the lien period, the time for liens must end before the bond is concluded.
- Contract Acceptance / Maintenance Bond Issuance
- Sureties want the contract accepted first and the P&P bond released before assuming the risk associated with a Maintenance bond. Some obligees require issuance of the maintenance bond simultaneously with the P&P bond at the start of the project, but underwriters resist this.
- Bid Results / P&P Bond Issuance
- Underwriters want to evaluate the adequacy of the contract price prior to bond issuance. They do this by evaluating the bid results, comparing the various proposals from different companies. In some cases, the bid results are not published, in which case they have wing it!
- P&P Bond for Started Project / All Right Letter
- The All Right letter is the obligee’s assurance that there is not already a problem on the contract that will result in an immediate bond claim. Sureties require a clean bill of health before bonding a started project (unless the degree of completion is very low i.e. 5%).
- Award Letter / Notice to Proceed
- Award letter comes first, then the contract signing and Notice to Proceed is issued. Then “Grab ya hamma!”
- Tough Bond Problem / Call Bonding Pros! 856-304-7348
- You can call us for discussion or general info any time. However, when a tough bond problem arises, that’s your cue to call in the experts. Getting with us is as easy as making that call. We have the markets and the expertise. Bonds are all we do – since 1972!
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