Replies

1. 
   DanH | Sep 17, 2009 04:53am | #1

   I'm pretty ignorant of such things, but my impression is that the sub gets the bond, and you write the bond requirement into his contract.

   As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
1. 
   davidmeiland | Sep 17, 2009 05:00am | #2

   Correct. A performance bond is basically an insurance policy that pays if the sub defaults, and whether or not the sub can get bonded--and at what price--has a lot to do with the sub's financial condition and bonding history. I have not had to deal with this much, but my impression is that a small operator working in residential with no bonding history is going to have to jump thru a lot of hoops to get a bond written--submit audited financials, etc. It would not be a bad idea for the GC to talk to his own insurance broker about bonding, at least for help in writing the requirements, but it's up to the sub to actually qualify and buy the bond. Most or all of my subs would walk if I imposed this requirement, they just aren't set up for it.

   To the OP, best thing you can do is write a very clear subcontract that spells out the scope of work and general conditions thoroughly, pay only for work completed and inspected, have a written warranty in place, get lien releases from the major supplies to your subs, know enough about the sub trades to inspect their work as it progresses, and deal directly with owners you know and trust.

1. 
   DanH | Sep 17, 2009 05:08am | #3

   Yeah, never dealt with a construction performance bond, but when we needed to get a bond for my brother to take over my mother's financial affairs I basically had to offer our house as security, and even then we went through at least 20 agencies before we found one that would write the bond (partly because the guy knew my late father).I would think it's not worth it for a $20K subcontract.
   As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz

2. 
   PaulMarcelSummerlandCa | Sep 17, 2009 05:22am | #4

   Thanks! I was hoping to get some insurance to cover it because if I have to bring in a new sub to finish someone else 's work it will be hard and more expensive.

3. 
   Hiker | Sep 17, 2009 07:15pm | #11

   Doesn't the bond issuer get to choose who completes the work should a default occur?  and don't they get to determine what scope of work is left to be completed?

1. 
   BillHartmann | Sep 17, 2009 09:48pm | #12

   When I remember hear of a government job and the contractor went South that the new story said that the Bonding Company was TAKING OVER THE JOB.Implying that they where operating at the GC and would hire subs and manage the project.Not just supply cash to hire someone else.don't know if that is the only way or even the common way that these are done.But again these are ususally much larger projects, in the millions..
   William the Geezer, the sequel to Billy the Kid - Shoe

2. 
   Oak River Mike | Sep 17, 2009 10:56pm | #13

   Not to my knowledge as in the situation I mentioned it was an out of state company and they seemed to be indifferent if the project ever got done or not. 

2. 
   migraine | Sep 17, 2009 06:32am | #5

   A performance bond for a $16k job.  I wouldn't touch it.  Not worth the headache and the additional expense.  Specially in this depressed, cutthroat market.

   Just to give an Idea.  In 1989, I was easlily doing $10k a month in cabinetry with no problem.

   I have found that to put my nuts on the line for a job like this, trust is a 2-way street.  You want a guarentee to protect yourself.  What are you bringing to the table to guarantee they get paid in a fair, timely manner?

   Something about this is making the hair stand up on the back of my neck.  But that is what I get from reading off a public website.

   Wait, I just remenbered where summerland is.  that's a 2 week job. You just got postal code redlined  ;~) 

3. 
   jonblakemore | Sep 17, 2009 06:38am | #6

   This doesn't answer the question, but I agree with the others. Don't mess with bonding for $16k.

   If you have to, do your best to pre-screen and then meet the sub on the job with a start check when he delivers materials and commences work. If you prove to be reasonable to work with (IE pay quickly), I think the subs will not have a problem with a slightly different payment schedule. If you play it right, you may be able to limit your max exposure to $3-4k at any point in time.

    

   Jon Blakemore

   RappahannockINC.com Fredericksburg, VA

4. 
   Schelling | Sep 17, 2009 02:33pm | #7

   We looked into getting a performance bond for a $500k project about ten years ago. We got an audited financial statement for our company which cost us about $800 at the time and our insurance agent found an underwriter. The fee for the bond was about 14% of the bid price. We did not get the bid because all the bids were too high and they rebid the project and we declined to rebid.

   You could expect to pay at least %15  more for the work. Given the size of the job probably more.  Most subs would simply not do the work.

   If we were doing a job that size and the owner wanted a performance bond, I would set up an escrow account and we would both put the full amount of the contract into the account, my amount to act as a performance bond and his amount to insure payment. The cost of this would be added to the contract price. How many subs would want to do this?

5. 
   jimAKAblue | Sep 17, 2009 03:42pm | #8

   Paul, I think the guys are trying to say to you: if you can't afford to lose that 16k, you probably aren't ready for contracting.

   Just kidding.

   There are dozens of ways to protect yourself and you should. Don't pay for anything before it's done. They'll ask for deposits: say no. If they need money for materials, go to the supplier and open an account yourself or pay cash TO THE SUPPLIER.

   Requiring a bond on small jobs like this will drive the better trades away, unless they are desperate. You'll spin you wheels because the bad guys won't/can't get bonded. Then, you'll end up back with your original trades telling them that you "don't need a bond after all".

1. 
   Oak River Mike | Sep 17, 2009 04:05pm | #9

   Just my two cents but performance bonds are not 100% guaranteed!

   I was just involved as a third party in an issue with a developer and the county I live in.  The developer had a $600k bond issued and then he went belly up. The bonding company told the county to pound salt and if they wanted the money they had to sue for it.  The county doesn't want to spend money in fees  trying to recover it so they are stuck with that amount outstanding and the work it was bonding never completed.  Its a huge mess.

   So while the concept of bonds are good, they are not without issues.

1. 
   davidmeiland | Sep 17, 2009 04:25pm | #10

   You're making an excellent point. I have seen some payments made in the last year by license bonds when a GC or sub went under and left unpaid bills with vendors, and they were only paid after a court judgement against the contractor was issued. So, be prepared to sue.

6. 
   paulandre | Sep 18, 2009 05:14am | #14

   who are you? I am paul marcel Why are you using my name?