Before any new construction project can begin, the land must get “graded” (leveled flat or at a prescribed angle). Grading the land ensures that it can withstand the weight of the property getting constructed on top of it. Grading isn’t only used for the construction of new buildings; it also gets used for transport infrastructures such as roads and railways.
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Construction companies cannot legally send machines out to the site and grade the land until a grading permit gets secured. And before a grading permit gets approved by the municipality, a grading surety bond must be in place to protect against disruptions or financial loss on the contractor’s part.
A grading permit surety bond ensures that all construction grading work on a project gets guaranteed in accordance with the building plans and terms of the permit. It acts as an agreement between the three parties involved in the project:
- The obligee – also known as the investor or project owner and the beneficiary of a grading permit surety bond;
- The principal – also known as the entity that must perform the work according to the contract (i.e. the construction company);
- The surety company – also known as the grading permit surety bond provider, the company issuing the bond.
In most cases, the obligee is a government agency that lists a construction project that it wants to be carried out. New construction bonds are a must when it comes to commencing and completing government contracts.
Why is there a need for grading permit surety bonds?
When a contractor wishes to commence work on any new construction project, it needs to have the appropriate permits in place. Nothing can physically get built without a grading permit, and that won’t get issued until there are grading bonds in place.
As you can appreciate the entity whose project must get completed doesn’t want to worry about potential financial loss due to delays or problems with the construction companies involved. And that is especially so with government agencies. To that end, surety bonds like new construction bonds and grading permit surety bonds are a necessity.
In most cases, the contractor that gets chosen to carry out construction work is usually the one that bids the lowest price for the job. Such an approach, especially from government agencies, ensures that costs get kept to a minimum, particularly with the case of any financial losses due to contractor issues.
While grading permit surety bonds mainly get used for federal and state construction projects, they can also get used for public works contracts too. The idea of grading permit surety bonds is they pay out financial compensation in the event of contractor issues such as:
- Fraud or malfeasance;
- Contract defaults, or contractor bankruptcy.
When the contractor fails to meet their obligations as part of the construction contract, they are “in default” of the contract. In such scenarios, both the contractor and the surety bond company get held liable for any financial loss. The obligee can then make a claim against the commercial permit bonds provider for financial compensation.
What does a grading permit surety bond cost?
The bond cost, also known as the bond premium, will depend on an array of factors. Typically, the cost to the contractor of the bond is a percentage of the overall bond. The other factors often include the applicant’s personal credit score and history and get assessed on a state-by-state basis. We work to get our clients prequalified for new projects.
Grading permit surety bonds benefits for project owners
Aside from taking on the liability of any claims due to issues with the contractor, grading permit surety bonds are useful in other ways too.
Perhaps the most important benefit of obtaining contract bonds is that the bond provider runs extensive financial and background checking on the contractor. If they feel that the contractor is too high a risk, they will not issue any bonds. Such refusals are usually good indicators to project owners that they should seek construction services from alternative providers.
Grading permit surety bonds are extremely useful for project owners when contractors are having cash flow problems or simply abandon projects.
It’s important to note that the bond amount gets set by the municipality, not the bond provider. The only thing the bond provider can set is the premium that gets paid by the contractor for arranging the grading permit surety bond.
What other types of construction bonds are there?
There is a lot that goes on during the construction of a building or transport infrastructure and the work involved obviously doesn’t stop with leveling the land for construction! With that in mind, it’s possible to get building permit bonds for a variety of aspects such as:
A bid bond is a requirement for the bidding process. Each contractor must submit a bid bond for construction alongside their bids to protect project owners should contractors back out of contracts after winning their bids.
Bid bonds get replaced by construction performance bonds when contractors begin work on projects. Performance bonds protect project owners from financial loss due to poor workmanship or contract violations from contractors.
Payment bonds are also known as payment and performance bonds for construction. They provide financial guarantees to project owners that winning contractors can afford to pay their workers, subcontractors, and material suppliers.
When construction projects get completed, project owners can get financially protected against defective workmanship or materials with maintenance bonds. Such surety bonds provide a financial guarantee for a specified time after completion of all construction work.
Government agencies at a city, county, or state level need financial assurances that contractors will fulfill their contractual obligations in the construction of subdivisions. They need to get assured that contractors will both finance and complete mandatory public improvements. Examples of such improvements include streets, sidewalks, and drainage systems.
How to get a grading permit surety bond
If you’re a contractor and wish to complete a government construction, it’s essential you have a grading permit surety bond issued before you get approved for the permit. Contact us today to discuss your requirements.