GRADING BOND
Subdivision, Maintenance & Grading Bonds
GRADING BOND OVERVIEW:
A Grading Bond is normally procured by a property owner in order to get a grading and/or building permit. The bond guarantees that the grading is being completed in conformity with the approved building plans and terms of the granting of a permit. In order to cancel the bond, the municipality must tender a release. In most cases it is the property owner who is required to qualify for the bond.
With the recent failure of the subdivision market these bonds can be carefully underwritten. To qualify the surety will make sure that the owner has adequate funding for the grading work. Aside from their good personal credit we will also want to make sure that the work is being completed by a reputable licensed contractor.
Public Works Bond rates start at 1% or higher based on credit and financial strength
Minimum premium of $250
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FAQs About Grading Bonds
We want you to feel comfortable working with our surety bond company and realize you may still have questions. Our FAQ section below will help you understand more about our business and what we do. Let’s learn more!
What Is a Grading Bond?
Essentially, a grading bond is a financial guarantee typically required at the city and county level when property owners or contractors need to move a significant amount of earth as part of a construction project.
There are limits on how much earth can be moved during the construction process, as defined by the city or county. If the amount that a grading or general building project requires exceeds such limits, owners, developers, or builders will need a permit.
In this regard, a grading bond guarantees that the parties involved in the construction process will carry out the grading work in accordance with applicable laws, approved grading plans, and the permit’s conditions.
How Does a Grading Permit Surety Bond Work?
Technically, grading bonds are agreements between the parties involved in the construction project. These are:
- The obligee, who is the project owner or investor and the beneficiary of this type of surety bond
- The principal, who is the person or entity required to perform the work according to the contract, such as the contractor or the construction company
- The surety company, which is the entity that issues the grading permit surety bond
Who Needs a Grading Surety Bond?
If the land must be graded during a construction project, companies cannot send machines and personnel to the site to start doing this. They need a grading permit first.
However, a grading surety bond must be in place for the municipality to approve the permit, as this offers protection against financial losses and disruptions on the contractor’s part.
In other words, any contractor planning to start a new construction project must have the required permits and, consequently, may need grading permit surety bonds.
Who is Eligible for a Grading Permit Bond?
Grading permit bonds are based on the applicant’s credit and liquid assets. The issuing company must ensure that they can cover the costs related to the project.
It’s essential to know that a grading permit bond will be in force until the project is completed and cannot be canceled. Once the city or county signs off the work, the bond will be released.
How Much Do Grading Bonds Cost?
As mentioned, the cost of a grading bond depends on several factors, including the following:
- The terms set by the city or county requesting the bond
- The credit and liquid assets of the applicant
- The bond amount
The bond premium for qualified applicants with solid credit can be as low as 2%, but rates could rise to up to 10% for parties with challenged credit.
Since calculating these costs is often challenging, those who need help can contact S Philips Surety & Insurance Services and request a quick quote.
Can Project Owners File a Claim on a Grading Bond?
Project owners can file a claim on a grading bond if the contractor or construction company doesn’t complete the work according to the terms set forth in the contract and the government’s regulations.
What Happens After a Project Owner Files a Claim on a Grading Bond?
If a project owner files a claim on a grading bond, the surety company will examine it to determine if it’s valid and estimate its value.
Sureties will make payments to complete the project as set forth in the contract if the claim is valid. However, contractors and construction companies are legally required to pay back the amount of money used to resolve the claim.
Are Grading Bonds the Same Thing as Insurance Policies?
Although similar, surety bonds aren’t insurance policies. While they offer protection to the project owner (the municipality, in this case), the contractor or company that purchased them must reimburse the surety for the amount paid out.
Are There Other Types of Construction Bonds?
There are several construction bonds that contractors and companies operating in this industry may need throughout the process. These may include:
- Bid bonds
- Performance bonds
- Maintenance bonds
- Payment bonds
- Subdivision bonds
What Kind of Information Are Contractors Required to Provide When Applying for a Grading Bond?
Contractors who wish to complete a government construction project must have a grading surety bond issued before applying for the permit.
To apply for this type of bond, contractors or construction companies should provide some information to the issuing company, including the following:
- Project description and related details, such as timeline, estimated cost, contract, and submitted plan
- Proof of other surety bonds or business insurance
- Business name, FEIN, and address
- Business and personal financial statements
- Description of background and experience in other projects
- The grading bond form requested by the county or city, if required
- Project owners’ names, social security numbers, and addresses
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