A letter of bondability, statement of bonding limits or statement of bondability are synonymous terms for a simple declaration of a surety underwriter that a particular contractor qualifies for some level of access to contract bond capacity. Why would a statement of bondability be important? The purpose of contract surety bonding is to provide a guarantee that the principal (general contractor or sub) will comply with the specific provisions of a construction or service contract. A performance bond is a surety bond that guarantees that the principal will "perform" those provisions. A project owner relies on a surety company not only for the strength of it performance bond but also that a competent surety underwriter has investigated the character, capacity and operating capital position of the contractor to ensure that he or she is likely to successfully deliver a completed project. It would not make sense for a project owner to require a bidding contractor to provide final payment and performance bonds before awarding a contract. So, how does an owner determine that a potential contractor is qualified? In the competitive bidding context, some level of comfort comes from receiving a bid bond however a statement of bondability may be equally attractive to the owner.
A statement of bondability is generally nothing more than a letter written on either the surety's or bonding agent's letterhead identifying the contractor (principal), the surety offering the letter and the limits for which the contractor is qualified. The letter is subjective, based solely on the author's opinion of how much capacity that the applicant contractor may reasonably obtain. While not usually as intensive as a full final bond review, a bond underwriter considers an applicant's character, capacity and capital position when offering limits. A statement of bondability may contain subjectives or may refer to them and it is not a binding document. Statement wordinging may be similar to the following:
"ABC, LLC, (hereinafter "Principal") has a current contract bond account with _______________. The Principal is in good standing. We have reviewed and approved specific capacity for this Principal. Our offered limits will support $_________ on single projects, and $________ as an aggregate for all open projects, subject to review and approval by us of ____________. We will consider each request for a surety bond or bonds based on our standard underwriting evaluation criteria, at the moment of the bond(s) request(s). We assume no liability to any party if for any reason we do not execute said bonds which may arise solely from this letter of recommendation."
Statements of bondability can be bespoke instruments, modified for the particular use or client but largely contain simple provisions above. Certain government agencies may require a statement of bonding limits to follow a particular format. Other licensing agencies may require a statement from an applicant in order to approve a professional license. A North Carolina Statement of Bonding Ability is required for example by the NC State Board of Electrical Contractors.
National surety bond leader, Surety One, Inc. is an experienced underwriter of contract surety bonds. We provide unmatched support of your performance bond needs, based on our knowledge of the construction sector and our personal relationship with contractors and subs. We facilitate immediate quoting and same-day delivery of contract surety capacity requests. Call us at (800) 373-2804, email Underwriting@SuretyOne.com or click here to chat with an underwriter real-time for more information about a statement of bondability, statment of bonding limits or any other surety need.
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