“How am I going to miss you if you don’t leave?”

Performance Bonds are issued by insurance companies, but are not insurance policies. When you reach the end of your auto insurance, it will lapse if not renewed. In addition, the company can cancel it in the middle of the year. Boom, it’s done! Insurance policies are not “forever.”

With bonds it is different. First of all, they are harder to come by. So when you finally have it, they don’t expire! And the surety company can’t cancel a performance bond. So how to do they finish?

The fact is that people focus on getting bonds because they are a required element of many transactions, but give little thought to getting rid of the bond, eventually. Let’s review why you want to close a performance bond and how to do it.

Every performance bond is married to a written contract that is identified in the first part of the bond. They are married to death, until the contract is completed. If you have a two-year contract covered by a Performance and Payment Guarantee, you have a two-year guarantee, unless the contract is extended. If the contract is modified to a term of 25 months, the deposit follows automatically. If the dollar amount of the contract is increased, the bond follows automatically. The purpose of the bond is to guarantee the satisfaction of the Obligee (the beneficiary of the bond) with the fulfillment of the contract. Therefore, the bond remains in effect until the obligor/contract holder accepts the entire contract.

To settle the bond obligation, a release or acceptance of the contract by the obligee is required. The applicant/principal (contractor) cannot cancel or close the bond. Only the obligee can terminate it.

evidence of closure it may consist of a status inquiry form completed by the obligor. The questions would be:

if the project IS finished:

Completion Date: ___________ Acceptance Date: _____________ Final Contract Amount: $___________

if the project IT IS NOT finished:

Approximate percentage or dollar amount completed: $_____________________________

Describe any disputes or performance issues on the project: _______________________________

Do you know of any unpaid bills for labor or materials? ____ No ____ Yes If yes, please describe: _____________________

Current Estimated Completion Date: ____________________________________

now that we know What to close a performance bond, why bother to do it? There are very good reasons…

bail

• The bail bond (bond company) will conclude the liability on their books when the bond is released.
• They also immediately earn all of the remaining bonus. Those are two good reasons!

The Contractor / Principal

• That portion of the company’s bond issuance capacity will be restored to support a new contract. This helps them qualify for more and bigger projects. That is the source of income for your business.
• When complete, the project is added to the company credentials. They can now list the contract as a successfully completed job. This is how you build your resume.
• The applicant business, its owners and spouses have a legal liability arising through the indemnity agreement (a release of liability issued to protect the warranty). It is literally a liability that must be disclosed in your financial statements. When the bonds are released, this business and personal liability ends.

The bonding agent

• The agent also wins because more bonds can be issued. And that’s how they make a living.

Conclution

Everybody earns when the job is closed and the bond is released. This is a necessary process that should not be ignored.