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How to Calculate Construction Bond Costs

How to Calculate Construction Bond Costs
How to Calculate Construction Bond Costs

Corporations and the federal government issue bonds almost every day. They do this to raise capital to pay for investments or projects. The state government is no different. It needs funding for infrastructure projects such as construction. To protect taxpayer dollars, government agencies require surety (construction) bonds before construction companies can bid for projects. This is also a common requirement for private projects. If a contractor cannot get bonded, the contractor will have difficulty finding work.

Instructions

  • Determine the contract amount. That is, you need an insurance policy for the amount of the work you are going to do. If this is for a project, look at the contract price on the request for quote (RFQ).This is the amount you need to insure.
  • Determine the range of costs. Construction surety bonds usually range from one-half to 2 percent of the contract amount.
  • Multiply the cost of the project (Step 1) by the percent cost range (Step 2) for an estimate of costs. For instance, if the bid is for a project that costs $50,000, then the cost of the bond will be anywhere from $250 (.005 * $50,000) to $1,000 (.02 * $50,000).
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