You are the proprietor of Mom and Pop’s Construction Co, Inc.
You’ve landed a pretty big job. You’ll be the prime sub on soome civil works project out in RaceLand.
So business is going good for you. Very good.
But there’s a problem. You’re just a little old peon. Nobody trusts you to not screw this up! Not your GC; not his customer; not his insurer; not the public. Well, if they hired you for the job, then they must trust you! Okay, maybe they trust you a little, but they want some assurance. They want assurance that if you screw this job up, they’ll be able to pay someone else to finish the job. You’re just little old mom and pop Construction Co, Inc. You don’t have that kind of money in the checking account (or on that sweet new Line of Credit you got from the bank).
So how do you give them that assurance?
Meet, the construction bond. A construction bond is a promise by an insurance company to cover the costs of a project if you cannot complete the project or if you screw it up.
That’s very kind of the insurance company. It is, but they’re not making this promise for free. You have to pay them a fee. How do they come up with that fee? Well, Mom and Pop’s Construction Co, Inc.’s fee is going to be a whole lot higher than Big Strong Construction Co’s fee. Why is that? How does the insurance company know that we are more risky? Well, one of the things they will ask for is your