An improvement bond is another name for a subdivision bond, which might also be referred to as a subdivision improvement bond. Owners of construction companies are most likely experienced with handling these types of bonds, designed to help you win more contracts and protect your client throughout the completion of their project. By offering improvement bonds to your clients, you can increase your chances of being the winning bidder.

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You might also be legally required to have subdivision bonds in place before you can start work, so it’s vital to be familiar with the ins and outs of how they work and when you need one. It’s also smart to have an improvement bond in place even without a legal requirement, and clients will often request one in order to work with you. Subdivision improvement bonds protect you and your client, providing a guarantee that your client will get what they pay for.

The Definition of an Improvement Bond – How It Works

Improvement Bond ServiceImprovement bonds can be known by many names, which may make things a little confusing. They are also referred to as completion bonds, performance bonds, municipality improvement bonds or development improvement bonds, or plat bonds. They are required by government agencies as a guarantee from the property owner, builder, landowner, or developer of the construction work of a subdivision that they will hold the financial burden of completing the public works improvements and that it will not fall on the government agency.

Improvement bonds are typically used for work that will provide a public benefit of some kind, such as the construction or maintenance of streets, sewers, gutters, and drainage systems. As well as ensuring the financial burden of completing the project is on the builder, developer, or landowner, it also guarantees that the work will be completed to the standards set by the local authority. When the obligations have been fulfilled, and the work is complete, the government will regain control of the subdivision.

Parties in an Improvement Bond

There are three parties involved in the creation of public works improvement bonds. These are the principal, the obligee, and the surety. The principal is the business or developer who buys the bond, and the obligee is the client or government entity who has requested the bond. The surety is the company that underwrites the bond and pays the costs if the developer fails to complete the work – for example, Pinnacle Surety. If this happens, the terms of the contract ensure the surety is reimbursed by the contractor.

When Improvement Bonds Are Used

Developer improvement bonds are used when a government agency requires land improvements to be carried out. When a piece of land is being developed, the public agency will consider any improvements that need to be regulated and designed. They will tender out the land requiring improvements to developers, who then must go through the governing agency to obtain the relevant permit and a subdivision map (or plat). Before work can begin, the developer must then fulfill the stipulation of completing any public improvements. The governing agency may require this before allowing the developer to start work. Improvement bonds are usually needed in this situation, offering a guarantee of what improvements will be completed and when they will be completed.

The Benefits of Improvement Bonds

Improvement Bonds BenefitsThere are several key benefits to improvement bonds. An improvement bond is required for many projects, so a developer may be completely unable to develop on a piece of land without one. The bond provides a prequalification for the developer or the landowner or property owner through the underwriting process, protecting all parties involved. The types of projects that require improvement bonds will also lead to improved public spaces, in addition to improvements that will be made to the land that is being developed. Another benefit is that surety credit is unsecured, which means that the developer’s source of funding is not reduced or tied-up by the bond.

Subdivision bonds usually provide the public agency with a 100 percent performance and payment and a 1-year maintenance bond. The full amount of the bonds are also available to complete the work if necessary, no matter how much the developer has spent until the time of default.

Difference Between Regular Contract Performance Bonds and Improvement Bonds

One thing to keep in mind is the difference between improvement bonds and regular contract bonds. With subdivision/improvement bonds, it is the developer or owner (principal) who has to pay the costs of the improvement works and not the public agency. This should be taken into account in situations where a general contractor agrees to secure or post the subdivision bonds on behalf of the principal. In this case, the general contractor is required to complete improvements and pay all bills even if the principal does not pay them.

Improvement Bonds By Pinnacle Surety

Pinnacle Surety provides payment and performance bonds for all developers. Our expertise and experience in the field allow us to secure bonds for a range of developers, offering a specialist service to provide you with comprehensive improvement bonds. When you are looking to secure a developer’s contract, we can handle everything to get you the bond that you need to win the bid. We can even help developers that have been rejected by other underwriters. Our skilled underwriters will do everything for you, taking care of all of the legalities so that you don’t have to.

Here at Pinnacle Surety, we have created a seamless process for securing improvement bonds to make everything easier for you. We work with you as a team, with our underwriters covering the legal aspects. Our reputation for working efficiently and getting clients the results that they need makes us a trustworthy provider of bonds. When you choose us for all of your improvement bond needs, you can guarantee that you will receive a professional service. Your project will be fully legally bonded, and everything will be set up correctly for you to win the contract that you want and for work to begin.