As a landscaping contractor bidding on major construction projects, you may be required to obtain surety bonds as a condition of project award. Surety bonds provide a guarantee that the landscaping contractor will fulfill the obligations of the underlying contract. If the landscaper fails to complete the job or defaults in other ways, the surety company compensates the project owner for losses up to the bond penalty amount.
This comprehensive guide will examine key topics related to surety bonds for landscapers, including:
- What are Surety Bonds and How Do They Work?
- Why Landscaping Contractors Need Bonds
- What Exposures Do Bonds Cover?
- Types of Surety Bonds for Landscapers
- What is the Bid Bond Process?
- Bond Claim Scenarios
- What is the Cost of Bonds for Landscapers?
- How To Get Bonded as a New or Risky Contractor
- Maintaining a Strong Bonding Relationship
What are Surety Bonds and How Do They Work?
A surety bond is a three-party agreement between the landscaping contractor, called the principal, the project owner, called the obligee, and the surety company. The surety company agrees to guarantee that the principal will fulfill the terms of the underlying landscaping contract.
If the landscaping contractor fails to complete the work or otherwise defaults, the project owner can file a claim on the bond. The surety company will then either arrange for the contractor to complete the project or pay the obligee for losses covered by the bond. This guarantee provides financial security and incentive for the landscaper to adhere to the contract.
The surety bond transfers risk away from the project owner by ensuring compensation if the landscaping contractor causes damages or fails to deliver. It also prequalifies the landscaping contractor, confirming they are properly licensed, bonded, experienced, and able to take on the job.
Surety companies carefully underwrite applicants to validate their technical skills, financial strength, equipment, personnel, and operational controls can handle the desired project. This underwriting process gives the project owner assurance in the landscaping contractor’s execution capabilities.
Why Landscaping Contractors Need Bonds
While surety bonds are not mandatory everywhere, they are required to legally perform landscaping work in many jurisdictions and on public construction projects. Typical bond requirements include:
License and Permit Bonds: Many states and municipalities mandate landscapers carry a license and permit bond to maintain active status or work in their jurisdiction. This covers penalties if the landscaper violates codes or regulations.
Bid Bonds: Often required when bidding on public works or large private landscaping projects. The bid bond assures the obligee you will enter into the contract if selected as the winning bidder.
Performance Bonds: Protects against losses if you fail to complete the landscaping project per the contractual terms. Covers costs for the obligee to hire a replacement contractor. Usually the largest bond on a project.
Payment Bonds: Guarantees you will pay all subcontractors and suppliers for their materials and services on the project. Protects against liens on the property.
Even when not legally mandated, many general contractors and commercial clients will require bonds from their landscaping subcontractors to share project risks. Being able to provide the proper surety bonds shows you are a qualified, bonded contractor suitable to work on major landscaping projects.
What Exposures Do Bonds Cover?
Surety bonds strictly cover failure to satisfy your contractual obligations. The exposures depend on the bond type:
License and Permit Bonds: Penalize infractions of codes, laws, and permit conditions.
Bid Bonds: Guarantee you will enter into the contract if selected as the winning bidder and provide necessary performance/payment bonds.
Performance Bonds: Compensate for failure to complete the contracted landscaping work properly or on schedule. This accounts for most losses.
Payment bonds: Cover failure to pay subcontractors and suppliers for labor/materials per your contracts. Protects against liens.
Surety bonds do NOT cover general business liabilities like injury claims, property damage, faulty workmanship corrections, cost overruns, etc. These are insured under your standard business insurance policies. The surety bond simply guarantees your base contractual compliance.
Types of Surety Bonds Used By Landscapers
There are several types of surety bonds that landscapers need to be familiar with:
License and Permit Bonds: Required by many jurisdictions to maintain an active landscaping contractors license or obtain permits. Covers fines for violations. Typically $5,000 – $10,000.
Bid Bonds: Guarantee you will enter into the contract if awarded the project. Usually set at 5-10% of the total bid amount.
Performance Bonds: Protects against default. Equal to 100% of the contract price.
Payment Bonds: Guarantees you will pay subcontractors and suppliers. Usually 30-50% of contract price.
Maintenance Bonds: Warranties corrections for defective work during a set period post-completion, usually 1-2 years. 25% of contract price.
You may need to obtain a combination of bonds on a large landscaping project. The specific requirements will be detailed in the project specifications.
What is the Bid Bond Process?
Bid bonds support contract bidding by guaranteeing the landscaping contractor will enter into the contract if they are the winning bidder. Here are key aspects of the bid bond process:
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The project specifications indicate if a bid bond is required and the dollar amount. Usually 5-10% of total bid.
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Obtaining a bid bond indicates the landscaping contractor has bonding capability and is serious about taking on the project.
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The bid bond is submitted with the project bid to prove bonding ability. This makes the bid responsive.
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If the contractor wins the bid, they move forward with formal contract execution and providing required performance/payment bonds.
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Contractors who win bids but fail to enter into the contract forfeit their bid bond to compensate the loss.
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Unsuccessful bidders do not forfeit their bid bond. It shows they participated in good faith.
Bid bonds prequalify bidders and create disincentives for inflated bids. Landscapers bidding on public or major projects should expect to provide these bonds.
Bond Claim Scenarios
Project owners will file a claim against surety bonds if the landscaping contractor fails to satisfy the bonded contractual obligations. Common claim scenarios include:
License and Permit Bonds:
- Performing unlicensed landscaping work illegally.
- Violating permit conditions like doing unauthorized work.
- Failure to pull required permits before starting landscaping work.
Bid Bonds:
- Refusing to enter into contract after winning the bid.
- Being unable to obtain required performance/payment bonds.
- Withdrawing bid and refusing the contract.
Performance Bonds:
- Failure to complete all contracted landscaping work.
- Breaching warranties or guarantees.
- Failure to meet quality standards or compliance requirements.
- Defaulting due to bankruptcy or closure.
Payment Bonds:
- Failure to pay subcontractors, suppliers, and laborers their contracted amounts.
- Subcontractors placing liens on the property for nonpayment.
The surety investigates claims and compensates valid losses up to the bond penal sum. Landscapers should avoid claim situations through proper licensing, permitting, bidding practices, contract execution, financial planning, and project management.
What is the Cost of Surety Bonds for Landscapers?
Surety companies charge an annual premium based on the bond type and amount. Typical rates range from 1-3% of the bond penal sum. For a $100,000 license bond, the premium may be $1,000 – $3,000 per year. On a $1 million performance bond, an annual premium might run $10,000 – $30,000.
Factors that influence surety bond premiums include:
- Penal bond sum amount. Higher sums mean higher premiums.
- Landscaping contractor’s financial strength and stability. Weak firms pay more.
- Company experience, reputation, and capabilities. New firms pay more.
- Contract terms, risks, and probabilities of default. Complex projects cost more.
- Surety company’s underwriting guidelines and rates.
- Local bonding regulations and requirements. Some regions cost more.
Established licensed landscaping contractors with solid finances/operations can often secure reasonable premium rates. Weaker companies may need collateral or pay very high premiums to obtain bonds. Overall though, premium costs are standard for running a landscaping business seeking major construction projects.
How Can Landscapers With Poor Credit or Finances Get Bonded?
Sureties evaluate three key criteria when deciding to approve a landscaping contractor for bonding:
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Capacity: Your technical skills, experience, personnel and equipment to perform the landscaping work properly.
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Capital: Your financial strength and resources to operate the business smoothly.
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Character: Your reputation, credit profile, reliability and transparency.
Landscapers with poor personal credit, corporate finances, or limited operational history will often face greater underwriting scrutiny. But there are steps you can take to improve bondability:
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Offer explanation and documentation to demonstrate past financial issues were temporary anomalies or isolated events rather than permanent weaknesses or mismanagement.
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Seek smaller bond amounts to start as a way to demonstrate you are a reasonable underwriting risk. Aim to build up higher bonding capacity over time.
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Present to the surety your qualifications, training licenses, equipment, key personnel, safety procedures, etc. to showcase your technical capacity even if finances are less stable.
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Provide the surety with strong client references and testimonials regarding past quality work, reliability, and standing in the landscaping community.
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Offer collateral such as letters of credit or liens on property to offset perceived risks of weak finances.
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Applying through a landscaping contractor group program may provide the extra backing needed to get approved.
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Work with a knowledgeable surety bond producer who can advocate to the surety on your behalf.
Reputable landscapers with sound technical capabilities can often obtain bonding even with some financial or credit concerns. The key is being transparent and demonstrating you are a reasonably good underwriting risk overall.
How Do Landscaping Contractors Get Surety Bonds?
The most effective way for landscapers to obtain surety bonds is to work with an established surety bond producer that specializes in the landscaping trade and represents multiple surety carriers. There are several advantages to using a specialist:
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They understand the unique risks and exposures of landscaping contractors. This helps tailor the right bond types and coverage amounts.
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They represent multiple surety carriers. This allows competitive quotes and maximum eligibility to find bonds despite credit/financial challenges.
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They can advise on local bond regulations and requirements for landscapers in your state or municipality. Ensures compliance.
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They advocate for the landscaper during underwriting. This facilitates approval and best terms/rates.
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They handle all paperwork, documentation, renewals, and compliance. Bonds stay current.
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They assist with claims handling and procurement of bond replacements if needed.
General insurance agents who do not specialize in surety bonds may not represent multiple surety carriers or understand nuances facing landscapers. This can limit options.
Going direct to a surety carrier without an intermediary producer can also be challenging for landscapers:
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Carriers may decline to underwrite individual contractors they view as too small. Producers get around this.
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Paperwork, financial disclosures, and processing requirements can be arduous for contractors without expert support.
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Lack of advocacy during underwriting may lead to denials or bad terms where a producer could negotiate improvements.
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Ill-informed decisions on bond type or amount selection are more likely without an advisor.
The best approach is to have an expert surety bond producer guide landscapers through education, market access, paperwork, compliance, renewals, claims, and everything bonding-related. Their expertise and advocacy is well worth the modest producer commission.
Maintaining a Strong Bonding Relationship
Once initially approved for bonding, landscapers must continue exhibiting the 3C’s of capacity, capital, and character to maintain bondability. Smart practices include:
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Pay premiums and renew bonds on time to keep coverage continuous. Lapses raise concerns.
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Build up bonding capacity gradually over time through good project performance.
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Maintain proper licensing and continue landscaping education/training. Stay current on codes.
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Perform responsibly on jobs and develop a reputation for meeting contract obligations. Limit bond claims.
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Manage finances prudently including proper AP/AR management, controlling overhead, and maintaining profitability and liquidity.
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Proactively communicate any issues, disputes, delays, or changes on bonded projects to avoid surprises or claims.
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Provide timely financial statement updates to the surety so they can monitor the company’s ongoing health.
By demonstrating the capacity to handle larger landscaping projects successfully over time, landscapers build up bonding capacity and maintain continuous access to surety support. This enables bidding on ever-larger public and commercial jobs.
Landscaper Bond Requirements by State
| State | State License Required | Landscaper Bond Amount |
|---|---|---|
| Alabama | Yes – Landscaping contractors must be licensed. License covers landscape design, tree surgery, setting plants, and turf pest control. Must pass exam and get pesticide applicator license if applying pesticides. | No Bond Required |
| Alaska | Yes – Landscapers require a specialty contractor license. Must show proof of insurance and bond but no exam needed. Pesticide applicator certification also required for pesticide use. | $10,000 |
| Arizona | No – No state license required but may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| Arkansas | Yes – Landscape contractor license required covering installation of plants. Pesticide applicator license also required for pesticide use. | $10,000 |
| California | Yes – C-27 landscaping contractor license required. Must show experience, pass exams, provide bond and show proof of workers’ comp insurance. Pest control certification also required for pesticide use. | $25,000 |
| Colorado | No – No state license required, may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| Connecticut | No – No state license required, may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| Delaware | No – No state license required, may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| Florida | No – No state license required, may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| Georgia | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Hawaii | Yes – C-27 and C-27b specialty contractor licenses required. Must show experience, pass exam, and provide insurance. Pesticide applicator certification required for pesticide use. | $15,000 |
| Idaho | Yes – Must hold Nursery, Florist & Landscaping license and register with occupational/professional licenses. Pesticide applicator license also required. | No Bond Required |
| Illinois | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Indiana | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Iowa | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Kansas | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Kentucky | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Louisiana | Yes – Must hold Landscape Horticulturist and/or Arborist licenses. Must pass exam and show proof of insurance. Pesticide applicator license also required. | No Bond Required |
| Maine | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Maryland | Yes – Home improvement license required for landscaping. Pesticide applicator certification and business license also required for pesticide application. | No Bond Required |
| Massachusetts | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Michigan | No – No state license required. Pesticide certification required for pesticide application. | $10,000 |
| Minnesota | Yes – Landscape Specialist certification required for plant installation/supervision. Pesticide applicator license also required for pesticide use. | $5,000 |
| Mississippi | No/Yes – No license required for maintenance only. License required for landscaping services. Pesticide applicator license also required for pesticide use. | $1,000 |
| Missouri | No – No state license required. Pesticide applicator certification required for pesticide application. | No Bond Required |
| Montana | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Nebraska | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Nevada | Yes – C-10 landscape contracting license required for jobs over $1000 or needing permit. Pesticide applicator certification also required for pesticide use. | $1,000 |
| New Hampshire | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| New Jersey | No – No state license required, may need business registration. Pesticide applicator license required for pesticide application. | No Bond Required |
| New Mexico | No – No state license required, may need local license. Pesticide applicator license required for pesticide application. | No Bond Required |
| New York | No – No state license required, may need local license. Pesticide applicator certification required for pesticide application. | No Bond Required |
| North Carolina | Yes – License required for landscaping services. Pesticide applicator license also required for pesticide use. | $10,000 |
| North Dakota | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Ohio | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Oklahoma | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Oregon | Yes – Landscape construction professional license required. No license needed for maintenance only. Pesticide applicator license also required for pesticide use. | $3,000 |
| Pennsylvania | No – No state license required. Pesticide applicator license may be required for pesticide application. | No Bond Required |
| Rhode Island | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| South Carolina | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| South Dakota | No – No state license required. Pesticide applicator certification required for pesticide application. | No Bond Required |
| Tennessee | Yes – Specialty license required for landscaping services. Pesticide applicator license also required for pesticide use. | $10,000 |
| Texas | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Utah | Yes – S-330 landscaping contractor license required. Pesticide applicator license also required for pesticide use. | $2,000 |
| Vermont | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Virginia | No – No state license required for maintenance/lawn care. Pesticide applicator license required for pesticide application. | No Bond Required |
| Washington | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| West Virginia | No – No state license required for maintenance/lawn care. Pesticide applicator license required for pesticide application. | No Bond Required |
| Wisconsin | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
| Wyoming | No – No state license required. Pesticide applicator license required for pesticide application. | No Bond Required |
Conclusion
Bonding is an essential component for landscaping contractors seeking public works and large private construction projects. Bid, license, permit, performance and payment bonds provide financial security and qualification pre-approval for project owners. By partnering with an experienced surety bond producer, landscapers can navigate the underwriting process to secure bonding support critical to elevating their business capabilities and opportunities. Maintaining robust technical expertise, financials, risk management, and transparent communication preserves the bonding relationship over the long-term.