What is a Surety Letter of Bond Ability?

What is a Surety Letter of Bond Ability?

Contractors who are new to the world of performance bonding will often approach us when a project owner or general contractor wants to hire them on a project. As part of this process a project owner or general contactor will sometimes ask for a Letter of Bond Ability (also called a pre-qualification letter).

A letter of Bond Ability is a formal document provided by a bond company that indicates your firm has a performance bonding facility in place. It might also say what project limits the bonding company is comfortable supporting.

Owners and general contractors ask for this document to get comfortable that you have a performance bonding facility in place and can secure bid bonds, performance bonds and labour and material payment bonds, if needed.

Unlike a bid bond, performance bond or labour and material payment bond, a Letter of Bond Ability does not provide the owner or general contractor any protection and is instead just an indication of your ability to secure bonds, if needed.

It is also important to note that there is no cost for each Letter of Bond Ability. As part of establishing a surety facility, your firm will be charged an annual fee. This fee covers all the Letters of Bond Ability, Bid Bonds and Surety’s Consents. A premium will only be charged if you are awarded a project and require a performance bond and/or labour and material payment bond.

Letter of Bond Ability Sample:

Dear Sirs:

September 16, 2020

We are the surety for Acme Construction Inc. and have a current bonding facility in place. Acme Construction Inc. has in our experience demonstrated an ability to complete their projects in accordance with the conditions of their contracts.

Our client wishes to be qualified as a tenderer for the above captioned project which we believe to be in the range between $3,000,000 to $4,000,000. Based upon the information available at this time and subject to our assessment of the contract terms, conditions, financing and bond forms at the time of tender, we believe we can support our client’s bid and supply the requisite bonds namely a 10% Bid Bond, 50% Performance Bond and 50% Labour and Material Payment Bond.

Acme Construction Inc. has current bonding limits of $12,000,000 Single Job and $20,000,000 Total Work Program. 

We have provided Acme Construction Inc. with Bonding Services for over 25 years and their account is in excellent standing with adequate limits available.

Should you have any questions, please feel free to contact us at (888) 241-5656.

Yours very truly,

New Bonding Insurance Company

 

John Doe

Attorney-In-Fact

 

If you require a Letter of Bond Ability, please contact us right away at 1 888 241 5656. We can provide these within a few hours.