Answers to Frequently Asked Questions about Surety Bonds

I'm sharing an interview with my bonding agent, Sean P. Kirwan.  When I started my business, I didn't need bonding.  As a matter of fact, when someone told me I needed a bond I thought bonds were just to get people out of jail.  That's how ignorant I was about it.

So I had to actually educate myself and found this amazing bonding agent that's been able to help my company. We were able to get a half a million dollar bond for a project that we were bidding on and it's just gone great. So I want to introduce you to my bonding agent because if you're in business and you want to work with the government at some point in time, you may need a bond and what happens is you want to have access to the bonds before you need the bond because it's going to help your company stand out.

So, I'm going to introduce you to
Sean Kirwan who is a principal with Commercial Insurance Associates, LLC, a twenty-year-old agency based in Nashville, Tennessee, and he's part of the Mid-Atlantic team of CIA.  Sean has over 15 years of experience in the Surety Industry, both as an underwriter and agent.  He has provided Bonds for a number of different industries, but is primarily focused on representing companies in the Construction & Government Contracting sectors.

Connect with Sean - Sean P. Kirwan, Principal – Surety, Mid-Atlantic Team, 610-716-5015 (cell), skirwan@com-ins.com

“Sean’s Key Takeaways”

What is a Surety Bond?

A surety bond is a three party arrangement between—the principal (you), the surety company, and the obligee (the entity requiring the bond). It is a written agreement where the surety obligates itself to a the obligee to answer for the default of the principal. In other words, the surety bond guarantees that the principal will act within accordance of their contract, and the obligee will be protected from any losses resulting from the principal's failure to meet their contractual obligation.

When do I need a surety bond and why are they important?

Surety Bonds are mandated under Federal Law, thanks to The Miller Act. The Miller Act requires bonds to be posted on any federal project exceeding $100,000; (Federal Acquisition Regulation/FAR Part 28 requires the bonds only on contracts that exceed $150,000).

While the Miller Act applies to federal contracts, each state has enacted similar requirements for their own state contracts, which are known as the "Little Miller Acts.”

So, Surety bonds are purchased as part of a contractual requirement (e.g. a municipality, state, federal government, court or construction project owner) and are important as they essentially protect the taxpayers’ dollars at risk.

Plus, establishing bonding support is important as it can serve as a pre-qualification tool for you & your company. It signifies you have been thoroughly vetted by a Surety Company, and possess a certain level of expertise, a proven track record of capabilities, and the financial wherewithal to successfully execute on the contract(s) you are pursuing.

Remember – Bonds can be a marketing tool you can use on the offensive, not on the defensive!

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How much do Surety Bonds cost?

Typically a bond can cost anywhere from .05% - 3% on average.  The cost of a bond can vary and is dictated by a number of factors, including the type of bond required, class of business, experience, corporate & personal finances, credit history, along with the particular Surety Company you are dealing with as well. Each Surety Company has their own individual rate filings for every state they operate in, so there could be some variances from one company to another.

The cost of the bond or premium are “service fees” charged for the use of the surety company’s financial backing and guarantee. Typically, this is a pass-through cost to the obligee/owner for which the bond is benefitting.
Two other important notes: Bonds are not cancellable in general; non-payment of premium cannot cancel a bond.

Is there a difference between a Surety Bond & Insurance?

The most basic difference between surety and insurance is that surety is a three party arrangement and insurance is a two party arrangement. The surety bond is more a form of credit versus a typical insurance product. Unlike most types of insurance, a surety bond is required by, and protects the interest of, a third party (obligee) rather than the insured (like insurance). Traditional insurance risks are evaluated based on the possibility of a loss happening to the insured. Surety risks are underwritten more based off the experience, capabilities, creditworthiness, and character of the principal.

Connect with Sean - Sean P. Kirwan, Principal – Surety, Mid-Atlantic Team, 610-716-5015 (cell), skirwan@com-ins.com