Performance bonds are typically required on construction contracts over $150,000. The bond amount is usually 100% of the contract value. Contractors must obtain bonds from surety companies, which evaluate the contractor's financial strength, experience, and capacity. Bonding capacity is a real constraint for growing contractors — work with a surety bond agent to build your bonding capacity over time. The SBA's Surety Bond Guarantee Program helps small businesses obtain bonds.
A small construction firm wins a $500,000 government building renovation contract. They must provide a $500,000 performance bond before work begins. Their surety agent evaluates their financials, past projects, and capacity before issuing the bond.
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