Isn’t that a great expression? “If it looks like a duck, swims like a duck… “
This article is about a problem we see often: Cases where the type of surety bond was not correctly identified, wrong app was used, time wasted, etc. It happened again this past week:
The agent called us with a performance bond need, about $10,000. They has used a short form application and sent it to another surety that rejected it. The reason given “the applicant was the principal.” The applicant is always the principal, so this didn’t help. We dug deeper.
The client and agent thought they needed a performance (P&P) bond, but we quickly identified it as a Site Bond – most sureties don’t do them. Let’s go through the key questions and characteristics that make it easy to recognize a site bond when it quacks.
A Performance and Payment bond guarantees a construction contract in which the Applicant / Principal is paid by the Obligee to perform the work.
Site Bond are written with the city or township as Obligee, guaranteeing that a developer or property owner will build required “public improvements” at their own expense, then dedicate them to the township.
Here are three key questions to get you on the right track:
Q. Who is the Obligee that is requiring the bond?
A. On site bonds, it is always the township or city whose planning board has approved the project.
Q. Is there a construction contract?
A. On site bonds there is no contract between the township and the property owner or contractor. On P&P bonds there is always a contract between the principal and the obligee.
Q. How did the need for the bond arise?
A. On site bonds, the township or township engineer writes to the property owner describing the need for the bond, the work it will cover “public improvements” and the dollar value. On P&P Bonds there are written specifications (requirements) and a construction contract.
Another clue that helped us quack, I mean crack, this case was the low dollar amount. You could get site bonds for less than $5,000 but it would be extremely rare to go that low on a P&P bond.
So now when one lands on your desk, you’ll recognize it. Any of your commercial clients could need one when they upgrade or modify their property. The next question is to choose a market. Most sureties don’t write them – that’s a problem.