Performance Bond

[Pennylady]

Looking for comments, suggestions and advice on performance bonds. Who is a good company to go with (private message me), expected cost, alternatives etc.

We finished a job 6 months ago, in which we got a performance bond for $278,000.00. Our rate was 2.5% for the first 100G and 1.5% for anything over 100,000. We are a debt free company and have impeccable credit.

The process of getting this bond was a PAIN, time consuming and required us to put our personal credit (which is perfect) and assets on line. The insurer was beyond difficult to deal with and meddled into many of our business affairs that had nothing to do with the contract they bonded. What really ticked me off is they did a 'post audit' of how much we were paid by the GC and tried to up the price of the bond. Never seen this in previous bonds. The job had some cost overruns and damage repairs in which the GC paid us T & M outside of the original contract that we were bonded for. The insurance company wanted extra premium for these separate contracts, copies of them etc. The GC does not need or want additional bonding, the job was closed out 6 months ago. How the insurance company found out about it was a sneaky letter they sent to the GC asking if the job was done, date it was done and how much they paid us. Of course on their end they said it was greater than the $278,000.00 because they had several contracts they paid us for that were allocated under that "property". They also paid us for temp heat, temp power, some equipment they kept that fell under that 'job' etc. When the bond insurer saw that the amount was more than $278,000 they tried to get more money out of us. When we baulked and said we (or the GC) are not asking for additional bonding, they asked for all sorts of documentation and tried to pile a whole bunch of work on me and my staff. Saying that "Ok that's fine we will back of the charges if you do this, and this and this and this".

 

[petersonra]

I don't see anything wrong or unusual with how the bonding company handled this, especially if this is your first bonding contract with these guys.

 

[mkgrady]

I don't see anything wrong or unusual with how the bonding company handled this, especially if this is your first bonding contract with these guys.

I second that opinion. In future bonded jobs you might insist that all change orders have an amount for the additional bonding. Even if the customer and or GC doesn't want the added bonding tell them the bonding company requires it once a performance bond is issued on a base contract.

 

[gadfly56]

I second that opinion. In future bonded jobs you might insist that all change orders have an amount for the additional bonding. Even if the customer and or GC doesn't want the added bonding tell them the bonding company requires it once a performance bond is issued on a base contract.

I have about nil experience with bonding, but this ex post facto move by the bonding company sounds really bush. The bond covers the risk, the job is done, where's the additional risk? Especially since the added work was done OUTSIDE the contract (read the OP) for which the bond was secured and therefore NOT as change orders, in which case there was no additional exposure for the bonding company. Unless the contract laws of the state in which the work was performed say otherwise, what's the bonding company's justification?

Pennylady, tell the bonding company if they go away you won't sue them for tortious interference with your business relationship with the GC.

 

[Pennylady]

Pennylady, tell the bonding company if they go away you won't sue them for tortious interference with your business relationship with the GC.

That is EXACTLY what I did! They backed off immediately. I was VERY concerned over the insurance company interfering in the relationship I have with my GC.

The additional work was on separate contracts, not change orders. Plus the GC only requires bonding on contracts that exceed 50G. When we do a contract with them, the two of us specifically clarify if a bond is to be purchased or not. The additional work was done at T&M (and costs), if they wanted to pay the extra for a bond they had the opportunity to do so. Sometimes they do and the bond cost to us is passed on to them and in turn passed on to their customer, the owner. In this case they did not specify that they wanted the additional contracts bonded.

I had never used this bonding company before (never again). I should have been clued in that that were going to be a pain when I had customer service problems with them when they first issued the bond. Unfortunately, I was committed to go with them before I learned they are undesirable to work with.

 

[petersonra]

Pennylady, tell the bonding company if they go away you won't sue them for tortious interference with your business relationship with the GC.

Go ahead and sue the bonding company and see how well that works out. And see how easy it is to get bonded the next time.

Part of the deal when you buy a bond is that you are in bed with the bonding company whether you want to be or not.

 

[TxShocker]

I don't see anything wrong or unusual with how the bonding company handled this, especially if this is your first bonding contract with these guys.

We have to bond 2 or 3 jobs a year (any where from 200,000 to 1,000,000) and I have to agree with what petersonra said. They bonded the job and they are entitled to their % they quoted you for the whole cost of the job ( not what your bid was but what your bid was plus any change orders)

 

[mkgrady]

Bond companies have to finish projects when contractors fail to perform. To think that change orders are exempt from being completed is not realistic. In most cases if the changes are not completed the project can't be completed either. To think no additional premium is due to cover the changes and the added risk to the surety is not realistic.

The only way to avoid additional premium on a bonded job is to have any added work be totally unrelated to the original contract that was bonded. An example would be a seperate contract for work at a seperate building.

 

[1900box]

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PennyLady, please check your PM........

 

[gadfly56]

Bond companies have to finish projects when contractors fail to perform. To think that change orders are exempt from being completed is not realistic. In most cases if the changes are not completed the project can't be completed either. To think no additional premium is due to cover the changes and the added risk to the surety is not realistic.

The only way to avoid additional premium on a bonded job is to have any added work be totally unrelated to the original contract that was bonded. An example would be a seperate contract for work at a seperate building.

You need to erase the phrase "change order" from your lexicon during this discussion. Pennylady made it clear that the additional work was performed under separate contract(s). Suppose the GC had contracted with another contractor for the additional electrical work. How would that contractor's failure to perform affect the bond risk posed by Pennylady? Or any other contractor's failure to perform? The bond is to protect the risk as defined by the scope of the contract between Pennylady and the GC. If there is no change in the scope of the contract there is no added risk to the surety. Simple as that. The fact that the bonding company backpedaled as fast as they did suggests they knew they were overreaching.

 

[gadfly56]

Go ahead and sue the bonding company and see how well that works out. And see how easy it is to get bonded the next time.

Part of the deal when you buy a bond is that you are in bed with the bonding company whether you want to be or not.

Well, if I'm to the point of suing the bonding company, I probably don't anticipate going back to them again :roll:.

And it's not a freaking marriage. Just 'cause I said "I do" with them once doesn't mean I have to again.

 

[mkgrady]

You need to erase the phrase "change order" from your lexicon during this discussion. Pennylady made it clear that the additional work was performed under separate contract(s). Suppose the GC had contracted with another contractor for the additional electrical work. How would that contractor's failure to perform affect the bond risk posed by Pennylady? Or any other contractor's failure to perform? The bond is to protect the risk as defined by the scope of the contract between Pennylady and the GC. If there is no change in the scope of the contract there is no added risk to the surety. Simple as that. The fact that the bonding company backpedaled as fast as they did suggests they knew they were overreaching.

The following was in the OP. "The job had some cost overruns and damage repairs in which the GC paid us T & M outside of the original contract that we were bonded for."

That means the added work was not unrelated to the original contract. If the GC hired someone else to do additional electrical work it would be a non issue for the bond company as the other contractor would be obligated to perform its contract.

When the bond company "backpedaled" I doubt they thought they were wrong. I suspect they just decided to dump the contractor as a client.

 

[mkgrady]

Well, if I'm to the point of suing the bonding company, I probably don't anticipate going back to them again :roll:.

And it's not a freaking marriage. Just 'cause I said "I do" with them once doesn't mean I have to again.

If word gets around that you stiff a bond company get ready to not get any performance bonds in the future.

 

[gadfly56]

The following was in the OP. "The job had some cost overruns and damage repairs in which the GC paid us T & M outside of the original contract that we were bonded for."

That means the added work was not unrelated to the original contract. If the GC hired someone else to do additional electrical work it would be a non issue for the bond company as the other contractor would be obligated to perform its contract.

When the bond company "backpedaled" I doubt they thought they were wrong. I suspect they just decided to dump the contractor as a client.

Here's where I don't understand your reasoning about the work being "related". If PennyLady decides to accept other work for the same GC on the same job site OUTSIDE OF THE ORIGINAL CONTRACT, how is that substantially different than accepting the identical work for a different GC on a different jobsite? Are you arguing that the mere acceptance of any other work no matter where located increases the risk of default on the bonded contract? If not, where precisely is the surety's increased risk?

 

[mkgrady]

Here's where I don't understand your reasoning about the work being "related". If PennyLady decides to accept other work for the same GC on the same job site OUTSIDE OF THE ORIGINAL CONTRACT, how is that substantially different than accepting the identical work for a different GC on a different jobsite? Are you arguing that the mere acceptance of any other work no matter where located increases the risk of default on the bonded contract? If not, where precisely is the surety's increased risk?

Read post #8. It answers your questions. Also in your example above the surety has no risk in work unrelated to the original project.

In performing most contracts, one of the obligations of both parties is to comply with the changes clause of the contract. Part of that clause is that the owner has the right to make changes and the contractor has the right to be compensated for them if their cost increases.

By seperating related additional work and putting them into a seperate contract for the purpose of avoiding additional bond premium is not realistic. It only serves to cheat the surety out of additional premium.

Really think about it. Imagine a complex electrical job with numerous changes and even disputes (see disputes clause), how in the world can the surety complete the project without completing the added work, the changed work and or the disputed work? This added risk must be paid for and if the OP wants another bond from anybody they ought to consider going back and appoligizing to the surety agent.