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Service Contract Surety Bond

What is a Service Contract Bond?

  • A Service Contract Bond is a surety bond that guarantees the Principal (service contractor) will perform the designated service contract according to specifications. Service Contract Bonds are a type of contract bond that guarantees the performance of a contracted service, therefore, they are also called performance bonds and sometimes just service bonds.
  • Service Contract Bonds are used in many non-construction related industries including:  Cleaning and Janitorial Services, Security Guard Services, Landscaping Services, Street Sweeping Services, Healthcare Services, Window Washing Services, Transportation Services, Management Services, Recycling and Trash Removal Services, and Educational Services, etc.
  • Service Contract Bonds differ from Supply Contract Bonds in that service bonds guarantee the performance of a contract, which can include labor guarantees. While supply bonds only guarantee the delivery of supplies or materials and do not carry any labor guarantees. Service bonds are primarily used in many non-construction related industries, where supply bonds are primary used in construction but can be used in many other industries as well.
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  • Service Contract Surety Bonds are individually underwritten so the cost can vary and depends on the size and scope of the contract as well as the contractor’s size and experience. Typically, well qualified applicants are charged as low as 1-3% of the total bond amount.
  • Due to the associated risk from the perspective of the bonding company, Service Bonds can be very carefully underwritten. Part of the cost of this bond will be the time and effort needed to provide the documentation and information the bonding company will need. Smaller projects may require just a credit check and proof of industry experience, while larger projects can require much more information. Depending on the size and scope of the contract, the contractor may have to provide corporate financial statements, personal financials, credit reports, industry experience, contract details and more. Here is a comprehensive list of items needed to establish a full surety relationship.

Service Bonds are often required by law. They are used to ensure services are performed according to contracted standards. If the contractor defaults or otherwise does not perform as contracted, then the Obligee will be protected from any losses. Service bonds can be used on public and private contracts.

  • Service Bonds are most often required by federal, state, and local governments. The entity that requires the bond is called the Obligee. You, the contractor, are the Principal on the bond. Bonds are required for most public services that use public funds. The bond is a protection tool that ensures public money isn’t wasted. Federally funded contracted services greater than $100,000 usually require a service contract bond. State and local municipalities each have their own requirements as to when a service bond is needed. Private projects and contracts can require a service bond as well.
  • For example, the Florida Department of Transportation (FDOT) could hire a landscaping company to maintain highway medians and shoulders. Because this would be a large contract using public money, FDOT would require the landscaper to post a service contract bond in order to guarantee the landscaper performs to the standards of the contract. In this case, the Florida Department of Transportation would be the Obligee and the landscape contractor would be the Principal.

Contact The ProSure Group! As surety bond experts in business since 1993, The ProSure Group has issued hundreds of Service Contract Bonds and has partnerships with more than 30 different surety companies. This ensures that we get you the best, most competitive pricing and terms available in the marketplace. You just need to complete our simple application and one of our specialists will quickly contact you.

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