Thursday, August 11, 2011

Bonds: Combination or A la Carte?

Should a public agency obtain one combination payment and performance bond, or separate payment and performance bonds?

How Many Bonds Are Required?  Some public agencies require a combined payment and performance bond in the amount of 100% of the contract amount.  Others more wisely require separate payment and performance bonds, each in an amount of 100% of the contract amount.  
  • The Risks of a Combined Bond:  With a combined bond, there may not be sufficient bonding capacity to meet all of the claims on a problematic project.  For each claim by subcontractors, suppliers, and workers, the amount of the bonding protection available for performance claims by the agency are reduced, if a combined bond has been provided. 
  • The Benefits of Separate Bonds:  Sureties I've talked with have indicated that separate payment and performance bonds do not cost the contractor more.  The benefit to public agencies of obtaining the separate bonds is to ensure there is sufficient bonding capacity to deal with a performance default by a contractor.

Mike Purdy's Public Contracting Blog 
© 2011 by Michael E. Purdy Associates, LLC

No comments: