Construction permit bonds are surety bonds required by a local municipality (think city or county permit offices) or state agency as a conditional requirement for obtaining a construction permit.
These permit bonds are required to certify public safety, protect a municipality’s financial interest, and ensure building codes are adhered to by licensed contractors.
When Is It Required to Have Permit Bond?
Not all city and county permit offices require a bond to issue a permit. The municipality will advise, when the contractor or property owner attempts to pull the construction permit, that a surety bond or financial guarantee is required as part of the permit documents.
Are There Different Types of Permit Bonds?
Encroachment Bond - a permit bond that may be required when a contractor’s work will cause them to encroach on government-owned land. This encompasses work on public roads, highways, and easement/access points.
Right of Way Bond - a permit bond for construction work performed on municipally owned public right of ways. Examples of public right of ways are sidewalks, right-to-cross, access to power or phone lines, and access to public water or sewage.
Grading Permit Bond - a permit bond required of a contractor or property owner when performing earth work such as listed below:
- Excavation/Earth-filling of depths beyond the listed on the permit application
- Erosion Control
- Drainage/Stormwater runoff controls
- Limited, mass, and contour grading
How Much Does a Permit Bond Cost?
No two permit bonds are the same, including the cost of the bond. There are encroachment bonds starting at $100 flat that are instantly provided upon payment. Conversely, certain grading and excavation bonds are priced by evaluating credit, license history, and required bond amount. There is a full spectrum of bonds that will have these simple or complex pricing standards and everything in between.
For instant-issue bonds the process to purchase is very quick. The permit bonds requiring more extensive underwriting can take additional time due to the individual bond requirements and underwriting processes. Apply now to see if the permit bond being required is an instant-issue bond.
What Does the Permit Bond Cover?
The permit bond is intended to provide a financial guarantee to the city, county, or state agency ensuring the contractor will follow the local ordinances, laws, and permit codes related to the specific permitted project. The bond can also serve as security to a municipality that the city or county property will be returned to its original form after construction is complete. Occasionally the property owner, not the contractor, will be required to obtain a permit bond for a city or county due to construction that may lead to work being performed on city or county property.
Personal indemnification is required for all permit bonds and all bond claims must be paid back fully by the contractor/property owner to the surety company, if the surety validates the claim on the bond. This is how a bond is different from a liability policy. Please note that proof of coverage for a liability insurance policy may also be a municipal permit requirement.