Performance bonds are defined as a guarantee a specific construction job will be completed to the satisfaction of the customer within pre-determined limits. Generally, collateral will need to be supplied by the builder for the surety company to issue the bond. The surety company will be in the form of a bank or an insurance company.
Both government agencies and private firms require the use of performance bonds in Arizona to guard against the loss of funds if the building project somehow goes awry. The most common government building projects that use performance bonds are road and bridge projects, although certainly they can be used many other types of projects. If the contractor covered by the bond does not finish the project within the pre-determined time frame, the surety company will either pay for the project to be completed or hire a company to finish the project.
In cases where the contractor fails to perform per the contract guidelines, or even if the contracting company declares itself insolvent and files for bankruptcy, the owner will still be covered for any monetary losses. The compensation will be equal to the amount the performance bond is for. Only the project or property listed in the Performance Bonds in Arizona is able to be claimed against, and only the owner of the project or property will be able to file the claim.
Before a performance bond is issued, there will need to be several documents provided to the surety company. These documents include a minimum of two years worth of financial statements prepared by a CPA, a copy of the awarded contract, the surety application, and any proof of real estate ownership. Owning real estate that can be used as collateral will expedite the application process.
Generally speaking, the cost of the performance will be 1% of the cost of the project. However, for projects that cost more than $1 million, the cost may rise to 1.5% to 2%. Ultimately, the cost will depend on the creditworthiness of the building company, but the aforementioned percentages are what can generally be expected. For more information or to start the application process, visit website