Contract bonds for tree contractors: what the SBA and federal rules say

This page reports what the official source says. It is not legal advice: ask the office named here. It covers the United States only. The page on what tree-work insurance covers lists the insurance policies.

What the SBA says a surety bond is

The US Small Business Administration says surety bonds help small businesses win contracts by giving the customer a guarantee that the work will be completed. It says many public and private contracts require them and that surety companies offer them. Its surety program guarantees bonds issued by certain surety companies, so that those companies can offer bonds to small businesses that might not meet the criteria of other sureties.

The SBA page separates two kinds. A contract bond ensures the terms of one specific contract are fulfilled. A commercial bond ensures that applicable laws and regulations are followed. The page says government agencies require certain companies or individuals to hold commercial bonds, which protect the general public against things like fraud. SBA guarantees contract bonds but does not guarantee commercial bonds. The licence bonds that some states ask of contractors are of the second kind, and the state pages are covered in the guides on contractor licences for tree work.

The four contract bond categories

Category	What the SBA page says it ensures
Bid	Full payment and performance bonding from the contract bidder
Payment	Full payment to the suppliers and subcontractors
Performance	Full completion of a contract by the small business
Ancillary	Completion of requirements outside performance or payment, such as maintenance

SBA fee and size limits

The SBA page says performance and payment bond guarantees carry a fee to SBA of 0.6 percent of the contract price, that the fee is returned if the bond is cancelled or not issued, and that there is no fee for bid bond guarantees. For eligibility it lists three points: the business qualifies as small under SBA size standards, the contract is up to US$9 million for non-federal contracts or up to US$14 million for federal contracts, and the business meets the surety company's credit, capacity and character requirements.

Federal construction rules

The Federal Acquisition Regulation, section 28.102-1, says the federal bonds statute, formerly known as the Miller Act, requires performance and payment bonds for any construction contract above US$150,000, with stated waivers. For construction contracts above US$35,000 and up to US$150,000 it says the contracting officer selects two or more payment protections. The listed protections are a payment bond, an irrevocable letter of credit, a tripartite escrow agreement, certificates of deposit and a deposit of certain securities. It says the contractor furnishes the bonds or alternative protection before receiving a notice to proceed.

The same regulation, subpart 28.1, covers bid guarantees. It says a contracting officer does not require a bid guarantee unless a performance bond or a performance and payment bond is also required. It says the bid guarantee is at least 20 percent of the bid price and does not exceed US$3 million. A bid bond signed by an attorney-in-fact must come with evidence of authority to bind the surety.

What this page leaves out

State and local public works bond thresholds differ from the federal figures above and are set by each state or agency. No bond prices or premium rates are shown here, because the sources do not publish them. Public tree-work bid sheets are on the public tree contract bids page.