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These surety bonds are general for all states.
Learn more about advance payment bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
Contractors often need to procure equipment or labor before work on a construction contract begins. Sometimes at the beginning of a construction project, a general contractor will need an advance payment, or down payment, from the project owner in order to pay subcontractors and suppliers.
An advance payment bond is a type of contractor surety bond that guarantees that the project owner recovers an advance payment in the event that the contractor defaults on the contract. These bonds are also referred to as “advance payment guarantees” or “advance stage payments.”
Contractors in need of advance payments are required by the obligee to first purchase an advance payment bond guaranteeing repayment of the amount advanced. The contractor is the principal in such arrangements. These bonds are used for both public and private construction projects.
These bonds differ from most surety bonds in that they are “on-demand” bonds rather than “conditional” (or “default”) bonds. With a conditional bond, the company that issued the bond (the surety) will investigate any claim made against the bond by the obligee and make payment if and when the claim is found to be valid. In other words, the surety must find the principal to be in breach of the contract before paying the claim.
An on-demand bond, however, does not require this determination by the surety. The surety must pay the obligee the amount of the bond immediately upon demand. After paying the obligee, the surety will pursue the principal to recover that amount.
The premium a contractor will pay depends on the amount of the advance payment and the premium rate the surety establishes for the contractor as the principal. The most common reason that contractors default on a construction contract is insolvency, so every application for an advance payment bond goes through an underwriting process to determine the applicant’s financial strength.
The surety will evaluate the business’s financial condition and credit history and check to see that the contractor is properly licensed and insured. The premium rate for the bond is generally in the range of 1% (for smaller projects) to 3% (for larger projects). The amount of the bond is multiplied by the premium rate to yield the premium amount the contractor will pay.
Use our convenient online system to apply for an advance payment bond today.
