The truth about Bonding and building Capitol in federal construction

By Sean & Doug Reitmeyer — GCExperts. Originally posted on Skool: .

Let’s talk about something that stops a lot of contractors before they ever get started in federal construction: Bonding. Specifically: Payment bonds. Performance bonds. “Do I qualify?” “What if my credit isn’t perfect?” “What if I don’t have capital?” First, let’s clean up terminology. Most people say “bond.” What they really mean is payment and performance protection. Under FAR 28.102, there are actually five types of payment and performance protection: 1. Surety bond 2. Irrevocable letter of credit 3. Tripartite escrow agreement 4. Cash (certified funds) 5. Deed to property Most contractors only know about bonds. That’s a mistake. The $150,000 Line Most People Miss Under FAR 36: Under $150,000 → Payment and performance protection is at the contracting officer’s discretion. Above $150,000 → It is generally required. That sub-$150K space is a massive opportunity. Most contractors skip it because they assume bonding is always required. It isn’t. How Surety Companies Actually Think Bonding companies look at three things: 1. Cash 2. Character (credit score) 3. Experience That’s it. And here’s what most people don’t understand: A surety bond is the only type of insurance issued only when the insurance company believes there is no risk. Car insurance expects losses. Bonding expects none. So if your credit is below 680, bonding becomes harder. Not impossible — just harder. But that does not mean you can’t operate. The Tripartite Escrow Agreement Strategy If you don’t qualify for bonds yet, you don’t quit. You adjust strategy. A tripartite escrow agreement is a three-party agreement between: You The government A bank The government pays the bank. The bank pays your subs and suppliers. You receive the profit. You don’t flow the material money. You don’t expose capital. You complete the project. This method is typically viable up to $150,000. It allows you to: Win jobs Build past performance Build capital Improve bonding strength