Construction Bonding! What do you know?

by a searcher from The University of Michigan - Stephen M. Ross School of Business

1 year ago

I'm under LOI with a water main installation and maintenance construction company that also does road construction projects. I'd like to learn more about the construction bonding process. 

What are competitive bonding rates? What drives bonding rates?
What are minimum asset thresholds for competitive bonding rates? How much must be in cash on the balance sheet?
How do you effectively shop and evaluate bonding companies? What services should I expect from a bonding company?
What are major red flags in bonding, both from bonding companies and the seller's use/explanation of bonding at his construction company?

I'd love to set up a phone call with someone knowledgeable about bonding. Thanks!

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6 comments

searcher from Northwestern University - Kellogg School of Management

I can't speak for the whole industry. As a new company, we were able to get bonding and thus get the project. We did not experience a revenue loss but our bonding cost was somewhat higher than other more established companies.

1 year ago | like reply | 1 like

searcher from Northwestern University - Kellogg School of Management

Josh, I'm sure Chris can advise you well, but just wanted to share my personal experience. I started a commercial construction business and needed bonding for a project. Since we didn't have a track record and revenues were below a certain threshold, we were quoted 3% of the project value. Plus the company and I personally were on the hook to cover any costs or issues associated with the project. The bonding company would only pay to complete the project if/when all company and personal assets were depleted.

1 year ago | like reply | 0 likes

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