The Cost of Various Construction Bonds

There are a variety of different types of bonds that are typically required on public works construction projects.  One of the common questions that many public agencies ask is how much these bonds actually cost a contractor.

The amount charged to a contractor for different bonds varies based on a number of factors including the experience, capabilities, and financial strength of the contractor, as well as the nature and risk of the project.  The size of the project is also a factor.

Generally, the following represents general guidelines for the cost of different bonds.

Bid Bond:  Most surety companies do not charge for a bid bond, since the contractor does not even know if they will be the low bidder.  Some sureties charge a minimal amount per bid bond, but generally bonding companies make their money by issuing Payment and Performance Bonds.

Payment and Performance Bond:  The amount charged to a contractor for a Payment and Performance Bond (or two separate bonds - one for payment and one for performance) varies greatly, but generally range between 1% and 5% of the amount of the contract.

Retainage Bonds:  Bonds issued in lieu of a public agency withholding a percentage from each progress payment as retainage have become more popular in recent years.  By submitting a Retainage Bond, the contractor is paid 100% of each payment application, rather than 5% or 10% being withheld as retainage for the protection of workers, subcontractors, and suppliers who have not been paid.  Generally, the cost of a Retainage Bond is in the neighborhood of 1% of the amount of retainage.  Thus, on a $100,000 project with a 5% retainage requirement, 1% of the $5,000 of retainage would equal $50 - a small price to pay for getting early access to the retainage.