Secrets of Bonding 105: Choose Your Partner!

When the music starts you take your partner by the hand and head for the dance floor!

When it comes to Surety Bonds, how do you know which partner to choose? Which bonding company fits the project at hand? Here are some tips:

Federal Projects

These contracts require a bonding company pre-approved by the Treasury Department to issue bonds with the federal government as obligee. Federal projects include all contracts with a branch of the federal government such as the Army Corps of Engineers, Office of General sets, Dept. of Veteran Affairs, and the Federal Aviation Administration. This a big area of activity with 38,786 contract opportunities listed as of this writing.

The bonding company must be listed / approved, and for a sufficient amount (equal to or more than the contract in question). Circular 570 issued yearly by the Treasury Department aka the “T-List”

Fine points regarding federal: HUD is not a direct federal agency, and makes their own rules.

Any other project owners may CHOOSE to require the T-list as a method of screening the bonding companies. You need to review the written bonding requirements to determine this. It could say that “a T-listed surety must be used.” It could also require that the T-list amount be equal to or greater than the contract in question.

State and Municipal Contracts

The most shared requirement is for the surety to be licensed in the state where the work is being performed. Many sureties do not find it worthwhile to continue licensing in all 51 states. * To check for a specific state, you can go the state insurance department, the surety may list this info in their web site, and it also appears in the T-list details (assuming the surety is on the list).

Private Contracts

This category includes all non-public commercial contracts, such as a general contractor building an office for a private company. It also includes all the subcontractors such as electricians, plumbers, roofers, etc. All subcontracts are private already if they are performed on a federal or state projects (because they are not “chief,” not contracted directly with the public entity.)

In this group you may find that a T-list requirement is indicated, or the owner may choose to be more open. They can make or waive the requirement at their only discretion.

Contract specifications may also stipulate a certain A.M. Best rating. Simply look up the surety to determine if they have a rating, and if it meets the requirement.

Conclusion

No two bonding companies have exactly the same credentials. The shared areas to consider are:

  • T-listed
  • T-list amount
  • State licensing
  • A.M. Best rating (size and financial strength)
  • Underwriting appetite
  • Excluded classes
  • Excluded geographic areas (Canada? Mexico? Overseas?)
  • Excluded jurisdictions (New York City?)

Picking the right partner is step one. If they will not be accepted as surety on the project, move on!

Hmmm… how about that wallflower over in the corner?

* Just want to see if you are paying attention! (:^D)

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