6 Essential Bonds To Support Your Contractor Clients' Business Growth

As a Property and Casualty (P&C) insurance agent, you strive to provide your contractor clients with a comprehensive suite of risk management solutions. By matching your clients with the right insurance policies, you empower them to grow their businesses with confidence. 

One crucial yet often overlooked element of a contractor's risk management strategy is surety bonds. These bonds help contractors secure large projects, comply with local regulations, and cultivate trust with project owners. 

Below, we’ll explore six common types of contractor surety bonds you may want to add to your product offerings. We’ll also highlight how partnering with a trusted surety provider, like UCS, can streamline the process and ensure your clients receive the expert support they need to succeed.

Contractor Surety Bonds Defined

Before we break down the different types of surety bonds, let’s briefly review how surety bonds work. Put simply, a surety bond is a legal agreement between the following three parties:

• Principal – The contractor purchasing the bond.
• Obligee – The party requiring the bond.
• Surety Company – The company underwriting the bond.

Project owners and government agencies often require contractors to purchase surety bonds to ensure they meet their contractual, legal, and regulatory obligations. To qualify for these bonds, contractors must prove that they’re financially stable and operate with integrity.

If a contractor falls short of their obligations, the obligee or project owner can file a claim against their bond with their surety company. After verifying the validity of the claim, the surety will pay the claimant up to the bond amount and seek repayment from the contractor shortly after. 

As a P&C agent, you often serve as the intermediary between your contractor clients and surety companies. Thus, it’s important to cultivate strong relationships with both parties and partner with a surety company that can support the best interests of your contractor clients.

Learn More: How Trust in a Surety Partner Impacts Business Growth 

6 Different Types of Contractor Surety Bonds

Now that you know the basics about surety bonds, let’s explore six essential types for ambitious contractors looking to grow their businesses.

1. License Bonds

As with many other industries, the construction industry often requires contractors to get licensed before they can operate legally in their state. Contractors’ licensing requirements may include:

• Obtaining a certain amount of supervised work experience.
• Passing an exam about building codes, regulations, and safe business practices.
• Registering their business with the state, county, or city.
• Undergoing a background check.
• Purchasing liability insurance and a contractor license bond. 

Contractor license bonds ensure that contractors will comply with their local laws and regulations. As a result, they help safeguard the public from potential hazards and protect taxpayers' investments.

Chances are, you already assist your contractor clients in securing the right insurance policies for their licensing needs. By offering contractor license bonds as well, you can further streamline their licensing process and position yourself as a one-stop solution for all their risk management needs.

2. Bid Bonds

Government agencies are just one type of surety bond obligee. Project owners, especially those overseeing large-scale projects with significant financial investments, may also require contractors to purchase surety bonds.

One way project owners protect their budgets is by requiring contractors to secure bid bonds before submitting proposals. These bonds ensure that the contractor has the ability and the intention to proceed with the project as outlined, should they be awarded the contract. In other words, bid bonds discourage frivolous bids, saving project owners time and money.

By offering bid bonds at your P&C agency, you can help your contractor clients pursue larger projects and grow their businesses over time.

3. Performance and Payment (P&P) Bonds

After securing a new contract, the next surety bond your clients may need is a P&P bond. This bond has two essential components:

• Performance bond, which ensures that the contractor will complete their project according to the contract’s terms, deadlines, and budget.
• Payment bond, which guarantees that the contractor will pay their subcontractors, suppliers, and laborers on time.

Along with helping contractors secure larger projects, P&P bonds can demonstrate their credibility and reliability, helping them build trust with clients and improve their reputation in the industry.

4. Warranty and Maintenance Bonds

Sometimes, the quality of a contractor’s work only becomes apparent after a project’s completion. For example, a project owner may discover that their latest commercial building has roof leaks due to improper installation, leaving them on the hook for costly repairs.

That’s where maintenance bonds come into play. These bonds guarantee that the contractor will promptly address any defects or issues that arise after a project’s completion for a certain period of time. If they don’t, the project owner can pursue repayment for the repairs from their surety company. 

By offering maintenance bonds, you can give your contractor clients the ability to showcase confidence in their work, demonstrate their commitment to customer satisfaction, and enhance trust with project owners, leading to more business and referrals down the line. 

5. Development and Subdivision Bonds

Some of your contractor clients may want to participate in large land development or infrastructure projects. If so, they’ll most likely need to purchase a subdivision bond first. Similar to P&P bonds, development bonds ensure that the contractor will complete their work according to their local government or municipality’s specifications.

Offering these types of bonds at your P&C agency means you can help your contractor clients secure higher-value projects and expedite their business growth.

6. License Bonds

Lastly, some of your contractor clients may need to purchase supply bonds. These bonds ensure a contractor’s timely delivery of materials and equipment to job sites during large-scale projects. If a contractor fails to provide their materials on time or uses substandard supplies, the project owner can seek compensation from their surety.

Like many of the other bonds on this list, supply bonds can help expand your contractor clients' opportunities, safeguard their reputation, and support their business growth.

Offer Surety Bonds With Ease by Partnering with UCS

While surety bonds may not be your primary focus as a P&C agent, offering them can diversify your service offerings and increase your revenue streams. More importantly, they can establish your P&C agency as your contractor clients’ go-to resource for all of their risk mitigation needs.

If you want to add surety bonds to your product offerings, consider partnering with USC. With over 30 years of surety expertise, an A- (Excellent) rating from AM Best, nationwide licensing, and U.S. Department of Treasury approval, USC is well-equipped to support your clients. We specialize in providing tailored bonding solutions for small-to-mid-sized contractors.

By partnering with UCS, you can match your contractor clients with reliable bonding options, helping them succeed in the competitive construction industry, all while focusing on your core insurance offerings.

Ready to discover how a USC partnership can propel your P&C agency to the next level? Contact our team today.

Sources:

Construction Business Owner. Your Guide to State-by-State Bond Thresholds. 
https://www.constructionbusinessowner.com/insurance/your-guide-state-state-bond-thresholds