What is a Surety Performance Bond in Pennsylvania?
Surety performance bonds are required by public agencies when the contract is for a single project over $5,000 in value. A joint surety bond is not required when there are multiple projects in the same county in the same calendar year totaling over $5,000.
The requirement can be satisfied by either a single or joint public agency performance bond issued by an insurer authorized to write surety insurance business in Pennsylvania. The language of this bond must ensure that if the principal contract(s) awarded to bidder/subcontractor are completed satisfactorily, that contractor will pay any claims made against any subcontractor for labor or materials furnished under that particular contact providing it is submitted within two years of final completion, and satisfactory payment has been received from the prime contractor.
Coverage must be provided on all construction for a period of one year from the date of final payment to the contractor by the public agency. Pennsylvania requires this performance bond requirement because it is used to protect both the general public and subcontractors by encouraging sound business practices in contracting with building contractors.
The Department feels that requiring these types of bonds reduces potential damages against public agencies resulting from improper contract administration, removal or control of property upon which a lien could attach under state law, breach of contract, failure to complete work as required in the contract documents, or other claims made by subcontractors against their prime contractor.
Just how much is a Surety Performance Bond in Pennsylvania?
A surety bond, also called a “performance bond” in the state of Pennsylvania, is a special type of contract between at least three parties. The first party is the obligee, who needs something done. A common example would be an owner-contractor relationship where one company wants to hire another to complete some sort of service.
The contractor would need the payment for services rendered, so they ask their customer to provide proof that they are financially capable of paying if there were any problems along the way.
Pennsylvania bond amounts are set according to industry standards. A contractor might need a $5,000 or $10,000 bond, while another business only needs a $1,000 surety bond for similar work. The contractor’s risk of loss is also considered as well as their past performance record.
If you have multiple employees that need bonding and your company has been in business for decades with an unblemished record of protecting customers’ investment, then your Pennsylvania Performance Bond amount will be much larger than a brand new company just starting out taking on one job at a time.
A specialty line bond is created specifically for “lines” of insurance offered by private companies not licensed by the state. A contractor applying for this type of bond must show evidence that they are an actual business with past performance records, wages paid to employees (if applicable), financial statements, tax returns, and other data.
What is the process to get a Performance Bond in Pennsylvania?
As for surety bonds, applicants should be aware that there are two types of basic contractor bonds required for starting a contracting business in PA:
- License and permit bond – this covers fees owed to the state by the license holder. It takes care of penalties, fines, and other charges levied upon them by Pennsylvania’s licensing boards. For example, if you do not have a proper license when it comes to bidding on or executing contracts with local authorities or public service providers – you will need to provide a license and permit bond.
- Performance surety bond – this protects subcontractors and suppliers from any faulty workmanship or materials used in construction-related activities. In addition, it also provides payment for damages caused as a result thereof.
In order to obtain these bonds, applicants need to contact an authorized surety company. As with any other business, applicants should choose a reliable and professional agency so their license application is not delayed or invalidated. There are several factors involved in bond prices:
- The total amount of the contract
- License type
- Years in operation
- Bond type
- Procedure for bidding on work
How to Get a Performance Bond in Pennsylvania?
A performance bond protects the principal contractor from damage that may result from faulty workmanship or materials delivered by a subcontractor or supplier. A performance bond will also protect the owner from financial loss as the principal contractor has contracted with them for an agreed price with specific terms and conditions.
Types of Performance Bond: There are three kinds of bonds offered by surety companies: Bid, Payment, and Labor & Material (also called Construction). The bid bond guarantees that if awarded a contract, they will perform it correctly at a fair cost.
The payment bond guarantees that if the point is awarded a contract, they will make timely payments to the subcontractors for labor and materials. The labor and material (or construction) bond protects the owner from financial loss during construction as the principal contractor has contracted with them for an agreed price with specific terms and conditions.
You can get a performance bond from any surety company. The best way is to ask your attorney or general contractor who they recommend as most of the time, they work with those companies and know them well. You can also check with us at Walker Surety Bonds, and we provide free consultation and quotes without obligation.
Where can I get a performance bond in Pennsylvania?
A performance bond is an agreement to make good on any costs, damages, or financial liability resulting from the failure of the principal (the borrower) to fulfill their business obligations. It is a form of security that protects against non-payment or financial default.
Performance bonds are used in both public works and private construction projects to protect general contractors and subcontractors. A contractor must complete many forms before getting financing for a project. One such form is called the bid bond, which you can find more information about here: Pennsylvania Bid Bonds. What you may not know is that there are also other bonds available. One of these types of bonds is called the Performance Bond – sometimes referred to as Construction Performance Bond, Contractor’s Performance Bond, or Contract Surety Bond.
No matter what your trade, it’s always the best policy to consult with your lawyer before you accept or offer any kind of work on a job that does not have an existing written contract.Rhode Island Performance Bonds