How Do Construction Bond Lines Work?
Bond Lines Explained
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Transcript
| Contractor | I've been learning about contract surety bonding, but I don't fully understand what a bond line is or how they work. |
| JW | No problem. I can help clarify it all for you! A contract bond line is your pre-approved limits for bonding. It is provided to you upon setting up an account with a surety. You will be provided two numbers, a single limit and an aggregate limit. The single limit is the max you can bid on any single contract, while the aggregate limit is the maximum amount of total work on hand you can have at a time. |
| Contractor | Ok, that makes sense. I'm told I have a $500,000 over $1 million line. What does that mean? |
| JW | The first dollar amount represents your single limit and the second is your aggregate. This means you can look for jobs of $500,000 and under. With an aggregate limit of $1 million, you can work on two jobs of $500,000 or 4 jobs of $250,000. You just need to keep below your per job and total bond limitations and you'll be fine. |
| Contractor | So I'm guaranteed to be bonded on any job I need it as long as they are within my bond line limits? |
| JW | Not exactly. For most contracts you'll be just fine. However, if the surety underwriter sees any red flags, they may decline to write it for you for your own protection. A good example of this would be excessive liquidated damages or if a bid spread is too large and they fear you miss-calculated the bid. |
| Contractor | That's nice to know they are a second pair of eyes watching out for my interests, but I'm a bit worried that my bond limits are going to keep me from do as much work as I'd like. |
| JW | A good construction bond agent can provide tips and a strategy on how to grow your account further. You can get some basic tips on the topics by watching our videos "How to increase your contract bond line" and "How to get the lowest rate". Regardless of how big your bond line is, it is always a good idea to provide your agent with updates on jobs as the work is completed. This allows the agent to get items removed from your work on hand reported to the surety, which results in more aggregate bonding capacity availability for you. |
| Contractor | Great! That will provide me some breathing room until I'm able to get a larger bond line. |
| JW | That's right! And with the proper strategy in place you will be able to grow your bond line with your company. |