Subdivision Completion Bonds

Also known as construction completion bonds, plats, or performance bonds, subdivision bonds assume the risk for completion of government-required community improvements associated with your development.

If you're planning a new construction project, subdivision sureties should be on your radar. As a construction company, developer, or landowner, you will need to post a subdivision surety bond before breaking ground or recording the parcel map. They assure the local government that you:

• Possess financial resources to pay for all required community improvements to support your development.
• Complete local community improvements on time. Necessary community infrastructure enhancements might include the addition of, or changes to, curbs, sidewalks, roadways, and/or sewers.
• Guarantee maintenance on workmanship and/or materials for at least a year.

Before bidding on the job or preparing an estimate, be sure to research the potential cost with a specialized bonding company. This way, you can incorporate the premium into the total bid or project cost.

These bonds are a type of contract surety that you post to obtain building permits and begin construction of a new building or development. (Site improvement bonds are similar, but intended for existing structures or developments.) The subdivision kind of bond guarantees to your local government (municipal, county, or state) that you will properly complete public improvements required to support your new development.

Without a bond from your surety company, you would need to tie up your own capital, cash, or credit (for the duration, plus the guaranteed maintenance period) to guarantee that all work and maintenance is properly completed. When you partner with a bonding company, you get a bond for the full coverage amount necessary, but you only pay a premium of 1 to 10 percent for the coverage.

The rate and terms set by your chosen surety company depend upon the level of risk they assume as guarantors of the bond. Choose an experienced bond-issuing company that offers subdivision bonds (not all do). A dedicated bonding agency will work hard to get you approved and set a fair premium rate to help your project succeed.

Your premium cost is based on factors that include:

• Contract amount or project cost
• Scope of the project or improvements
• Source of your project's funding
• Type of project/work you will perform
• Work location (state, city, etc.)
• Your personal credit score (as the principal or business owner)
• Your years of experience, years in business, and reputation
• The documented financial health of your business (based upon your financial reports)

Here are the top benefits of a subdivision/construction completion bond:

• Improves cash flow. Enables you to begin selling properties within the subdivision before government-mandated community improvements are completed.
• Helps you pre-qualify (through the bond underwriting, due diligence process).
• It provides unsecured credit. Bonds won't tie up capital or reduce any available credit that you may have.
• Eases your stress. Our claims division helps resolve any issues with the local municipal authority. Without the bond, you might forfeit any security you would have provided as a guarantee to the local municipality.
• It lowers your risk. Typically covers you completely (100 percent coverage to guarantee your performance, payment, and the full-year maintenance commitment you made to the government). If you, as the developer, should default, the full bond amount is available to complete the community improvement work on your contract.