Indiana Performance Bonds

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What Are Indiana Performance Bonds?

Indiana performance bonds are also referred to as contract bonds. This is because they guarantee a contractor�s completion of a construction job in accordance with the terms of a legally binding contract. An Indiana performance bond serves these important purposes:

• It is the contractor�s guarantee to comply with all applicable Indiana statutes, contractual requirements, and the terms of the surety bond agreement.
• It protects the project owner requiring the bond against financial loss resulting from the contractor’s violation of the surety bond agreement, including non-performance due to insolvency.
• It provides a source of funds for compensating the project owner if they need to hire another contractor to remediate unacceptable work or complete the project.

Who Needs Them?

Purchasing a performance bond is a common requirement for being awarded a public works project in most Indiana counties and many Indiana municipalities, as well as state-sponsored taxpayer-funded projects. Very often, a payment bond is required along with a performance bond.

How Do They Work?

The legally binding surety bond agreement for an Indiana performance bond is a contract between three parties, known in surety bond lingo as the obligee, the principal, and the surety:

• The government project owner requiring the bond is the “obligee”
• The contractor required to purchase the bond is the “principal”
• The firm that underwrites and issues the bond is the “surety”

If the obligee files a claim against an Indiana performance bond (for example, due to the principal defaulting on the construction contract before completion) the surety will investigate to determine the claim�s validity. If possible, the surety will negotiate a settlement that does not involve legal action against the principal.

If no settlement is reached, the surety will most likely pay the claim on behalf of the surety, even though the surety bond agreement places the legal responsibility for paying claims squarely on the principal�s shoulders. In paying the claim, the surety is extending credit to the principal, which creates a debt that the principal must repay. This leaves the surety in the unenviable position of trying to collect a debt from a contractor that is already most likely in financial trouble.

What Do They Cost?

For obvious reasons, the surety has two big concerns in issuing a performance bond: the likelihood of claims and the degree of risk involved in extending credit to the principal. The underwriters assess the potential for claims by looking at the contractor�s industry experience and any past claims history. Underwrites judge risk by considering the contractor�s personal credit score and business financials. The less risk to the surety, the lower the premium rate the principal will pay�potentially as low as 1% for a well-qualified principal. If the surety considers the risk to be too high, the contractor may have trouble getting bonded.

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Request a convenient online quote today, or call to speak with one of our experienced professionals about the performance bond you may need to be awarded a construction contract in Indiana.

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