Florida Construction Surety Bonds: Performance Bonds That Protect Construction Projects

Don't Just Get A Quote...
Get Instant Approval In Minutes

Home > States > Florida > Florida Construction Bond

Construction projects have high risks. These include delays, disputes, and cost overruns, which can derail a project. A proper bond amount in construction surety bonds helps with this. Construction bonds are a way for everyone involved to minimize these risks. Let’s explore why these financial security measures matter in Florida, and key things you need to know about them.

Key Takeaways:

Construction bonds are a type of surety bond. They protect all parties in a project by ensuring financial guarantees.
There are several types of construction bonds used in Florida, like bid bonds, performance bonds, and payment bonds.
Florida has specific regulations around construction bonds that contractors must comply with.
Obtaining bonds involves eligibility checks, paperwork, and costs that vary based on the project.
Contractors, project owners, and surety companies all have defined roles and responsibilities within a bonded contract.

Understanding Construction Bonds in Florida

What Are Construction Surety Bonds?

Construction bonds are a type of surety bond. They guarantee that a contractor will fulfill their obligations to a project owner. A surety company stands behind them to cover costs if they fail to complete the project as agreed.

When contractors buy bonds, they’re saying: “We promise to do the job properly, and the bonding company will pay if we don’t.” This protects the project owner.

The contractor pays a surety company to provide the bond. The surety company checks the contractor has the skills and financial resources to complete the project.

Main Types of Construction Bonds Used In The State Of Florida

There are a few common bonds in Florida’s construction scene:

Bid Bonds – Guarantees a contractor will follow through on their pricing bid.
Performance Bonds – Protects against contractor default. Ensures the job gets done per the contract.
Payment Bonds – Guarantees subcontractors and suppliers will be paid.

Maintenance bonds also help fix issues after construction finishes.

Navigating Florida’s Construction Bond Regulations

Florida legislation mandates surety bonds for public works projects valued at over $200,000. Many private sector construction projects require bonding too.

Understanding Florida’s Bonding Laws

The state statute that governs public construction bonding requirements is Florida Statute 255.05. This law was recently updated to include more stringent subdivision infrastructure standards.

Staying compliant means contractors must closely follow regulations like:

Adhering to bid, performance and payment bond minimums
Meeting strict application timeframes
Ensuring total bond penalty caps correlate to contract value

Surety Bond Requirements for Public Works

Florida’s bond regulations primarily center around public works contracts. Core public sector bonding demands include:

Bid Bonds

Must total 5% of contract price
Bid holds for 60 days

Performance Bonds

Value must equal 100% of contract amount
Remains valid for 12 months after work completes

Payment Bonds

Also capped at 100% of contract sum
Stays active for 1 year after project finishes

What Private Sector Projects Require

While private builds don’t fall under Florida statute 255.05, construction lenders often mandate bonding minimums in financing agreements. Typical levels mirror public works, needing:

Bid Bonds: 5-20%
Performance Bonds: 100%
Payment Bonds: 100%

Step-by-Step Guide to Obtaining Construction Bonds in Florida

Starting the Bond Application Process

Applying for a bond in Florida involves a few key steps:

1. Complete Application Forms

Fill out the bond application forms in detail. This collects information on your business operations, finances, licenses, dispute history, and the project specifications.

2. Gather Required Documents

Supply supplemental paperwork like financial statements, tax returns, licenses, and cash flow projections. This verifies your business credentials.

3. Accept Evaluation and Screening

The surety company assesses your business profile and construction track record, checking eligibility criteria are met. This screening process aims to validate you can complete the bonded commitments.

Timing matters when seeking bonds – apply 4-8 weeks before the planned project start. Rushed applications may face rejections or delays.

Understanding Surety Bond Costs and Fees

In Florida, construction contract bond premiums often range from 1% to 3% of the total contracted project amount.

Exact pricing considers multiple risk factors like contract specs, business profile, and more. Larger contracts typically incur higher premiums.

Various one-time fees may also apply during application, including processing charges, underwriting costs, and insurance expenses.

Confirm full breakdowns upfront with your selected bond provider to avoid surprises. Their customer service teams can clarify potential expenses through the application process.

Looking For Something Else?

We have thousands of bonds instantly available.

Roles and Responsibilities in Bonded Projects

Successfully completing a bonded job requires participation from contractors, owners, and surety providers. Understanding each party’s obligations is key.

The Obligee – The Project Owner

The project owner is referred to as the obligee. Their core needs as obligee include:

Assurance that work finishes on time, within budget
Checking contractors demonstrate strong prequalification credentials and financial stability
Monitoring project performance regularly
Acting reasonably in approving/rejecting work elements
Making prompt payments once delivery milestones complete

Owners must avoid over-asserting bond rights unreasonably. They can risk sureties questioning fair dealing.

The Principal – The Contractor’s Role

As the main bonded party (termed the principal), contractors must:

Provide fully accurate information during underwriting
Fulfill all contract terms fully
Maintain proactive communication, escalating promptly if issues emerge
Demonstrate good faith in resolving project disputes

Principals failing contractual duties face bond default claims.

The Surety’s Responsibilities

The surety acts as underwriter and potential insurer. Key responsibilities look to minimize bond payout risks, including:

Conducting thorough principal prequalification vetting
Requiring collateral guarantees from bond holders
Setting restrictions to limit exposure
Taking over contract completion if principal defaults

Increased contract transparency protects all parties when issues arise.

Best Practices in Bond Management

Strong contract management helps avoid defaulting on bonds.

Smart Management Strategies

Successful contractors:

Closely monitor costs and cash flow
Thoroughly track communications
Maintain current financial statements

Updating sureties shows good faith.

Avoiding Pitfalls

Common but avoidable mistakes include:

Poor documentation when disputes arise
Failure to inform sureties early about difficulties
Using bond funds for non-approved purposes

Construction Bonds Case Studies in Florida

Let’s examine real-world construction bond examples in Florida.

Disney World Expansion

Disney used multiple surety bonds for their $1 billion Florida theme park upgrade. Payment bonds protected subcontractors. Performance guarantees assured work finished on schedule.

Airport Budget Overrun Issues

Weak contract management caused major Orlando Airport expansion budget overruns. Rushing planning stages led to disputes. The airport authority had to claim performance bonds after firing contractors.

Proper processes reduce overruns!

Finding Florida Construction Bond Providers

Many providers offer surety bonds in Florida, and shopping around helps find optimal blends of rate and service. Choosing the right fit depends on:

Service strength in your contractor niche
Florida licensing
Solid financial stability ratings

Why Simpli Surety Is Your Best Choice!

We at Simpli Surety have decades in the business and mix personalized support services while offering something that’s revolutionary to the industry. You can actually apply on our platform, get approved, and receive your bond instantly! If you’re in need of more information, please contact us and our expert team would be happy to assist.

Wrapping It Up

Bonds are your secret weapon for keeping risks at bay. They’re here to safeguard owners, contractors, and subcontractors. They do so from the financial headaches that disputes, delays, or defaults can bring. This applies to bid, performance, and payment bonds.

Getting to grips with how these bonds work, what they cost, and the rules that govern them can simplify the whole process. Moreover, mastering the art of keeping thorough documentation and staying on top of communication can drastically reduce the chances of running into issues down the line.

Construction might be a complex dance of details and deadlines, but navigating the world of bonds doesn’t have to be. By making the most of bonds, everyone involved can breathe easier, focusing on ensuring the project moves forward smoothly.

FAQs

Q: What are the basic requirements for getting a bond in Florida?

A: The core eligibility criteria are 2+ years trading, strong finances and credit, valid licensing/registrations and a clean disputes record. Provide historic and projected cash flows, P&L statements and tax returns when applying.

Q: How do costs vary in Florida?

A: Bond premiums primarily depend on the contract size, contract type, project risk factors and the financial stability of the company being bonded. Larger complex projects often incur higher premiums.

Q: Can small contractors be bonded for projects?

Yes. Factors like personal credit, business processes, and collateral help small contractors show they are eligible for surety credit lines. Many Florida agencies specifically serve small construction firms.

Q: What happens when a bond claim arises?

A: The surety investigates, requesting documentation and details from all parties involved. If valid, they arrange payments to the affected party from bond funds. Resolution aims to satisfy the bond agreement.

Q: What impact do recent Florida law changes have?

A: Added public works contract requirements for early release of retained funds shift potential risk back to sureties. Expect adjustments in underwriting approaches on affected projects.

Q: What are best practices for bond compliance?

Maintaining detailed project documents is key. Tracking communication and changes is crucial. Closely managing finances and keeping surety companies informed is vital. These steps help avoid non-compliance.

It is possible for a Surety Bond Company to “cap” a bid bond. This means they will have a maximum bid amount on the bid bond and therefore a maximum bond penalty.

Cost

Cost of bid bonds depends on the surety bond company and broker. MG Surety Bonds does not charge for bid bonds. We want to build a long-term relationship with our clients and issue bid bonds as part of that service.

How to Get a Bid Bond

In most cases, companies with good credit can get bid bonds up to $500,000 freely with a simple application. Larger bid bonds may require additional information and our staff are happy to help you through the process. You can see the process for obtaining a bid bond in the chart below:

Contractors can also learn more about construction bond underwriting and what it takes to get bid bonds here. As contractors grow, they may need more surety bond capacity to take on additional work and to obtain more bid bonds. You can read more about increasing your surety bond capacity here.

What Happens to the Bond After the Bid?

Should you be the successful bidder, the Obligee will likely require you to enter into a contract. At that point, they may ask you to provide Performance Bonds and Payment Bonds.

Should your bid be unsuccessful, the bid bond will simply expire, and you can shred it and move on to the next job. There is no need to have the bid bond returned.

When Would Someone Make a Claim on a Bid Bond?

Bid bond claims are rare. Normally they occur in one of two circumstances:

• When the Contractor (Principal) decides not to enter into the contract for that price

• When the Bond Company (Surety) decides that they will not support performance and payment bonds for the project.

Both circumstances typically happen when a contractor makes a large mistake. The Obligee could then make a claim on the bid bond. An example is below:

Contractor 1 bids a project with a 5% bid bond. The bid is turned in at $700,000. Contractor 2 is the second lowest bidder at $1,000,000. After reviewing their bid, Contractor 1 realizes they made a mistake and left something out. Contractor 1 tells the Obligee that they will not be entering into the contract. The Obligee can then make a claim on the bid bond for $35,000 ($700,000 x 5%) to compensate them for having to rebid the project or go to the next bidder.

Suppose in the example above that Contractor 1 still wants the project at $700,000 and would like to go ahead. Their surety bond company may decide not to support the project. The Contractor must either find another surety bond company who will support the project or the Obligee can make a bid bond claim. You can read all about bid bond claims here.

Defenses to Bid Bond Claims

A valid defense to a bid bond claim is clerical error or error in transposing the numbers. For example, let’s say a material supplier gave you a bid for $50,000 but in your rush to get your bid together, you wrote it down as $5,000. This could be a valid defense to a bid bond claim.

Best practice is to go the Obligee as soon as you know there is a mistake. Regardless or whether there is a valid bid bond claim or not, most good owners and contractors do not want to start a project with someone who is upside down on the project. They may decided that it is best to move on to the next bidder.

Indemnity

Bid bonds are written on The Principle of Indemnity. That means that if a valid claim does happen, and the surety bond company pay a claim, they will seek reimbursement from the contractor any other indemnitors. The terms are normally spelled out in the General Indemnity Agreement which a contractor will be required to sign with the surety bond company before receiving any bid bonds.

Electronic Bid Bonds

Many Obligees have moved to electronic bidding. This is especially true for Department of Transportation projects. The underwriting for obtaining these electronic bid bonds are still the same. Once the bid bond is approved by the surety bond company, the electronic bond is approved in the bidding system.

What to Look for in a Bid Bond Company

The bid documents will outline the requirements for the surety bond company writing your bid bond. Many will require that your surety bond company be rated “A-“ or better by the rating agency A.M. Best. Contractors should be very suspicious about using a bond with a lesser rating. Most contracts will also require your surety bond company to be listed on the U.S. Department of Treasury’s Circular 570 which you can check here. This is sometimes shorted as a “T-Listing”.