Performance Bond Rate Calculator
Estimated Bond Premium
Your estimated cost for this performance bond is:
*This is an estimate. Final rates are determined by the surety provider based on creditworthiness and project history.
Understanding Performance Bond Rates
A Performance Bond is a guarantee provided by a surety company to a project owner (obligee) that a contractor (principal) will complete a project according to the terms and conditions of the contract. If the contractor fails to perform, the surety steps in to ensure completion or compensate the owner for losses.
The Performance Bond Rate is the percentage of the total contract value that the contractor must pay to the surety company as a premium. Unlike insurance, where premiums are based on expected losses, bond premiums are service fees for the extension of the surety's credit.
How to Calculate Your Bond Premium
The calculation for a performance bond is straightforward but depends heavily on the rate assigned by the underwriter. Use the following formula:
Total Premium = Contract Amount × (Bond Rate / 100)
Typical Bond Rate Tiers
Surety companies often use a tiered structure for larger contracts. While small projects might have a flat rate, larger projects often follow a sliding scale:
| Contract Segment | Typical Rate Range |
|---|---|
| First $100,000 | 2.5% – 3.0% |
| Next $400,000 | 1.0% – 1.5% |
| Next $2,000,000 | 0.7% – 1.0% |
| Over $2,500,000 | 0.5% – 0.8% |
Factors That Influence Your Rate
- Financial Strength: The contractor's balance sheet, liquidity, and net worth.
- Experience: Proven track record of completing projects of similar size and scope.
- Credit Score: Personal credit of the business owners is a primary factor for smaller contractors.
- Project Type: Highly specialized or high-risk construction projects may command higher rates.
- Work-in-Progress (WIP): The amount of other bonded work the contractor currently has outstanding.
Example Calculation
Imagine a contractor wins a bid for a municipal library renovation worth $750,000. The surety company, after reviewing their financials, quotes a rate of 1.2%.
Calculation: $750,000 × 0.012 = $9,000.
In this scenario, the contractor would pay a one-time premium of $9,000 to secure the performance bond required to start work.