Subdivision Development Construction Project Bonds are a type of contract surety bond posted by developers and home builders as security for local government-required community improvements. Similar to other contract bonds, such as supply, labor, and material or payment bonds, they differ from supply, labor, and material or payment bonds in that their purpose is different. What do you think about Subdivision Developer Bonds?
These contracts involve more extensive work that takes longer to complete, thus increasing their risk for surety bond companies and making them harder to obtain than other forms of contract bonds.
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Grading Bonds
Grading bonds provide assurances to local jurisdictions that contractors or developers will fulfill improvements agreed to with them for subdivision improvements as per an agreement they sign, such as a grading bond agreement. They may be necessary when applying for building permits; underwriters often want specific details regarding scope, deadlines, costs, and how these estimates were arrived at; engineer worksheets can usually aid this process.
Site Improvement Bonds, also referred to as Plat Bonds or Completion Bonds, are another type of construction surety bond that guarantees public construction projects such as streets and sidewalks are completed according to an agreement between governing authorities and project Principals. They act as guarantees against contractor fraud when construction or improvements begin and ensure public works projects meet their expectations.
Grading bonds tend to attract higher premiums than contract performance surety bonds as their underwriters carry more risk. Payment for such grading bonds usually occurs annually until construction is complete and approved by the municipality, at which point their underwriter releases it from payment obligations.
Contractors seeking this type of surety bond should possess experience working on similar projects in the past and demonstrate financial strength and liquidity—something they typically achieve by creating separate LLCs for each development project.
Site Development Bonds
Municipalities frequently require site development bonds from developers or landowners to guarantee that government-mandated community improvements, such as streets, curbs, sewers, landscaping, and utilities with public application, are completed on schedule. This three-party guarantee protects municipalities in case their developers don’t complete their projects on schedule.
As their name suggests, these bonds are typically purchased by developers who have subdivided larger pieces of land into smaller sections, which are then sold off as commercial or residential buildings/lots. Municipalities require these bonds as a guarantee that all aspects of the subdivision project will be carried out according to regulations and contractual agreements.
Bond issuers taking out these bonds face considerably greater risk compared to other contract performance bonds due to the nature of their obligations being completed without payment, leaving both principals and surety companies exposed to double obligations.
These bonds are typically written through a dedicated contractor/construction bonding agency that understands developers’ needs, helping them select an unsecured solution tailored specifically to their project. Premium rates for these types of bonds tend to be considerably less than contract bond rates available elsewhere, further protecting cash flow and credit.
Supply Bonds
Supply bonds protect material suppliers working on construction projects. This type of contract surety bond is often required on public or large projects that require many materials. Should one of the principals fail to fulfill obligations on their project, individuals can file claims against this type of bond to ensure that another contractor will complete or finish off. Common supply bond claims involve upgrades/repairs to sidewalks/electrical upgrades/improvements, etc., being completed as promised or paid for with this money from claims filed against this type of bond.
Municipalities often mandate these improvements as a condition for selling properties within a subdivision, giving the municipality assurance that these upgrades will be completed regardless of whether all properties are sold.
Bond companies underwrite these bonds differently than letters of credit; instead, they take into account your overall experience and financial well-being to assess any guarantees currently secured through letters of credit, as well as offer greater access to cash for your developer in today’s challenging economic climate. Obtaining letters of credit usually requires significant upfront capital outlays while restricting borrowing ability with their lender.
Subdivision Bonds
Subdivision bonds provide municipalities with financial assurance that developers will fund and complete required improvements for subdivision development. They also guarantee payment to laborers, subcontractors, and material suppliers owed money by way of subdivision projects. Compared with letters of credit, subdivision bonds offer greater sustainability by not tying up cash or decreasing businesses’ borrowing capacity.
These contract surety bonds, also referred to as Land Improvement Bonds, Developer Bonds, Site Improvement Bonds, or Plat Bonds, guarantee construction projects will be completed on time and within budget. When required by local governments, requirements for such surety bonds will typically include setting work requirements as well as amounts that need to be completed. Usually, a property developer or owner serves as the Principal. Cities or municipalities requiring the bonds are known as Obligees, while any surety bond company that guarantees completion is known as Sureties.
To obtain a subdivision bond, the principal must submit their contract for construction to a surety bond company and allow them to review its size, scope, and length, as well as their history and credit, to determine if they can provide adequate coverage. Typically speaking, costs for these bonds range between 3% % and 6% of the total contract amount, with experienced agents vital in helping secure optimal terms for them.
