US contractors comparing surety bonds should begin with the owner’s required bond form and the specific project. The useful comparison is between routes that can supply that obligation on acceptable terms. A low advertised price for a contractor licence bond does not answer a request for project performance and payment bonds.
Identify the obligation before asking for prices
NASBP describes a surety bond as a three-party arrangement involving the principal, surety and obligee. In construction, those roles generally correspond to the contractor, surety company and project owner. Bid, performance and payment bonds address different obligations: entering the awarded contract, completing it, and paying covered subcontractors and suppliers.[1]
Licence and permit bonds belong to a different category. NASBP lists them among commercial surety bonds, rather than construction contract bonds.[1] Put the exact bond type, required amount, obligee name and form in every enquiry so that competing responses address the same requirement.
Compare the routes for the same project
- Standard contract surety placement — What to establish: Whether a proposed surety will underwrite the required obligation without an SBA guarantee; Evidence to request: Named issuer, accepted form, underwriting conditions, premium and delivery timetable
- SBA-guaranteed contract bond — What to establish: Whether the business and project qualify and a participating surety will approve the submission; Evidence to request: Participating agency, required documents, guarantee fee, surety charges and approval steps
SBA guarantees bonds issued by participating sureties; it does not replace the surety company as issuer. Its programme can help eligible small businesses that might not meet other sureties’ criteria. SBA covers contract bonds rather than commercial bonds, and applicants must still satisfy the surety’s credit, capacity and character evaluation.[2]
These are placement routes, not a ranking of providers. Ask the producer to explain which route they propose for your actual submission and what must happen before the bond can be issued. A preliminary indication is not the completed bond required by the owner.
Separate the SBA fee from the surety quotation
The SBA overview states a guarantee fee of 0.6% of the contract price for performance and payment bond guarantees, with no SBA fee for bid bond guarantees. It also states that the guarantee fee is returned if the bond is cancelled or not issued.[2]
Do not read that percentage as the total price of the bond. Ask for an itemised quotation identifying the surety premium, applicable guarantee fee, other charges and the basis used for each calculation. Have the producer confirm current programme terms and eligibility for the transaction.
Compare the same contract amount, bond obligations and project period. Record how changes in contract value or duration would affect charges, and which quoted costs remain payable if the award does not proceed.
Prepare a submission that makes missing information visible
Use the following as a proposed preparation checklist, then ask the producer which documents their underwriter actually requires:
- Project file: Solicitation, contract, bond forms, scope, location, schedule and submission deadline.
- Business identity: Legal entity, ownership, operating history and relevant licences.
- Financial file: Available financial statements and an explanation of their dates and preparation basis.
- Workload: Current projects, remaining work, expected completion dates and any disputed items requiring explanation.
- Delivery capacity: Comparable completed work, project leadership, important subcontractors and unusual execution risks.
A compact index helps the producer identify gaps without mistaking an incomplete file for an underwriting decision. Agree who supplies each missing item and when. Avoid promising the owner a bond delivery date until the responsible producer has confirmed the remaining steps.
Review indemnity, collateral and issuer acceptance
Request the proposed indemnity agreement early. Have legal counsel explain who would sign, what reimbursement obligations it creates, how expenses or claims are handled, and what continues after the project ends. Ask separately whether collateral is required, in what form, and under what conditions it would be released. Do not infer these answers from the premium.
For federal contracts performed in the United States or its outlying areas, FAR 28.202 requires proposed corporate sureties to appear on Treasury’s approved list and sets additional acceptance conditions.[3] Check the exact proposed issuing entity and applicable updates, then confirm the solicitation’s acceptance requirements with the contracting authority. A familiar brand name or directory entry alone does not establish that a particular bond satisfies the project.
Make the final comparison reviewable
Keep a single decision sheet containing the route, issuer, form, amount, total quoted charges, indemnity and collateral conditions, outstanding documents and expected issuance date. Record unanswered questions beside the responsible party. The strongest proposal is the one that meets the actual obligation with understood conditions and a workable timetable, not simply the smallest headline percentage.
Frequently Asked Questions
- Can a contractor licence bond replace a project performance bond?
- They address different obligations. NASBP distinguishes licence and permit bonds from construction contract bonds.[1] Obtain the exact bond type and form required by the project owner.
- Does the SBA guarantee fee include the entire bond price?
- No. The published SBA guarantee fee is a programme charge.[2] Request an itemised quotation that separately identifies the surety premium and any other applicable charges.
References
- National Association of Surety Bond Producers: About Surety Bonding (nasbp.org)
- US Small Business Administration: Surety bonds (sba.gov)
- Federal Acquisition Regulation: Subpart 28.2, Sureties and Other Security for Bonds (acquisition.gov)