A site improvement bond is a specific type of surety bond that guarantees that a project owner will make site improvements within an area. The bond ensures that the improvements are completed in full and to certain quality standards. Site improvement bonds are commonly used by landowners or property owners. Premiums typically cost 1% to 3% of the bond amount.
In this site improvement bond guide, we’ll cover:
Definition and Example
How It Works
Cost and Requirements
Site Improvement Bond vs. Subdivision Bond
Where to Find & How to Apply
Commonly used by developers, builders, and property owners, site improvement bonds are surety bonds required by a governing agency to guarantee the completion of certain site improvements. Common site improvement projects include repaving sidewalks, landscaping, or improving storm drains.
In a surety bond arrangement, there are three parties involved:
Principal: The landowner, developer, builder, or contractor who must purchase the bond (you).
Obligee: The party that requires the principal to obtain a bond (often a governing agency, such as a local municipality).
Surety: The company that sells the surety bond to the principal, guaranteeing their performance to the obligee.
If the landowner or contractor (you) does not fulfill the contract, the obligee can file a claim with the surety to get reimbursed or find another contractor to finish or fix the work.
Side note: Site performance bonds are also known as subdivision bonds, performance bonds, completion bonds, and plat bonds.
Let’s say a local municipality requires the landowner to repave the sidewalks around the project site. After the deadline, the sidewalks are inspected and the sidewalks are not smoothed out and some sections were untouched. Since the work was subpar and not even complete, the local municipality filed a claim against the bond, and the surety paid for another contractor to complete the work.
When a landowner plans to further develop an area, the local municipality may require them to make site improvements related to the project. The bond is often a condition for securing a construction permit when making improvements to an existing structure. Projects requiring this bond often involve improvements to sidewalks, streets, street lamps, storm drains, utilities, and landscaping.
While the landowner is responsible for making these improvements, the contractors they hire may not deliver on their agreement. Since quality can vary by the contractor, the bond is used to guarantee to the governing agency that the site improvements will be completed in full and up to code. Therefore, the obligee is protected against any of the following scenarios:
The work is past the agreed-upon deadline.
The final improvements are below quality standards.
The improvements were completed partially (or not at all).
One key difference between site improvement bonds and other surety bonds is that the property or project owner pays for the site improvements — not the governing agency. Remember: the site improvements (which often benefit the general public) are a condition of the governing agency approving the site owner’s project.
If the obligee files a claim against the bond, the surety’s claims department will investigate the alleged claims. If the claim is found invalid, then the contractor is not financially liable for the claim. But if the surety confirms the claims are valid, the obligee will be reimbursed for any financial loss. If the claim was related to incomplete work, the surety may cover the cost of hiring another contractor to finish the job.
The contractor is then responsible for repaying the surety for the amount paid to resolve the claim.
Premiums typically range from 1% to 3% of the required bond amount (possibly higher for low-credit and inexperienced contractors). The obligee will clearly state whether a bond is needed and the required amount. A $500,000 bond for a site improvement job, for example, may cost between $5,000 to $15,000.
When calculating your premium, the surety will consider:
The size and complexity of the site improvement project.
Your work experience and track record.
Your credit score.
Your business financial statements.
Generally, higher credit scores and extensive work experience result in lower premiums. Conversely, low-credit contractors may face higher premiums.
Terms for site improvement bonds are typically the duration of the project. The contractor would need to secure a new bond for each project.
While sometimes used interchangeably, site improvement bonds aren’t identical to subdivision bonds. Their functions are similar — providing guarantees to the obligee — but their use is slightly different.
Site improvement bonds are typically used for upgrades and improvements to older and existing structures.
Subdivision bonds are typically involved in upgrades and improvements to newer structures.
Bonds are commonly purchased through insurance companies or specialized surety bond companies. Fortunately, many sureties have quick online application processes:
Apply online and provide your personal and business information.
Receive a premium quote based on your qualifications.
Purchase your bond.
File your site improvement bond with the governing agency (obligee).
Keep in mind that you may need to file a specific site improvement bond form depending on the municipality or the surety. The obligee will outline any specific requirements.
Obtaining a site improvement bond is easy when applying with Worldwide Insurance, Inc. Just fill out our initial application form and get an instant quote in minutes. With rates starting as low as 1%, we issue all types of surety bonds in all 50 states. No credit check required and no obligation.
A site improvement bond is a surety bond that guarantees the completion of site improvements to an existing structure. If the final result is incomplete, over-budget, or below quality standards, the obligee can file a claim against the contractor’s bond to receive reimbursement.
Contractors generally pay a premium that is 1% to 3% of the required bond amount. For example, a contractor can expect to pay between $1,000 and $3,000 for a $100,000 site improvement bond.
Site improvement bonds typically carry terms for the duration of the project, unlike other types of surety bonds with fixed terms of one year or more.
Yes, bad credit applicants can still get bonded but may face higher premiums. Worldwide Insurance, Inc. works with thousands of contractors and businesses — even those with low credit — to help them meet their bonding requirements.