Lien bonds are considered a higher risk form of bond for surety companies. The main reason is that they are inserting themselves into a situation where there is an ongoing dispute. Surety companies are not law firms and so may lack the ability to determine who is legally in the right. However, if a surety has issued a performance bond on a project they have a vested interest in seeing the project completed. If there is a dispute they may have a larger onus to issue a lien bond if they have already issued a performance bond on that project.
The cost for these bonds is between 2-3% of the value of the lien inclusive of court costs. So if a mechanics lien is filed for $500,000. The court would add 25% for court costs bringing the total value to $625,000. The premium would then range between $12,500 and $18,750. It should be noted that this premium is billed annually until the dispute is resolved and the lien bond is released from court and returned to the surety company.
A bond company will look at a variety of items when considering whether or not to issue a lien bond.
Those include the following:
Surety companies have a greater interest to issue lien bonds when they have already provided a performance bond on that project. The reason being, is that the placing of a mechanics lien stops the flow of payments from a project owner and increases the likelihood of a performance bond claim because without any payments flowing, work will likely cease on the project.
However, if there is no performance bond in place it can make securing a lien bond more difficult. As such, the requirement for one of the following pieces of collateral is more likely:
Lastly – if the lien bond is required on a project where a performance bond has not been issued the likelihood of a rate closer to 3% would also increase.
Our organization has been working with FCA Surety Bonds and Insurance for over 2 years. The team, led by Jamie Collum and Warren Griffiths, exceeds expectation in service, responsiveness and construction knowledge. Our business needs often demand last minute bonding, and we have never been disappointed by FCA. Always going above and beyond to deliver the right solution in a seamless and effortless manner. We highly recommend FCA for all construction insurance needs.
After 6 years in business, our construction company was asked to provide bonding for 3 very important projects that were awarded to us. We had no idea where to start as bonding was something totally unknow to our organization. A quick search online, and let me say, we couldn’t have found a better company to assist us…. FCA! Andrew and his team were quick to explain the intricacies of bonding, all the requirements including processes. They took their time to clearly explain and educate us on all that is bonding. They were patient and they took the time to walk us through the necessary steps to get us started and set up. These days, it is rare to receive this level of support. I highly recommend FCA!
FCA is one of the best companies we have had the pleasure of working with so far. Very professional, fast and always on time. Looking forward to continue working with them.