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Janitorial Bonds

November 24, 2021

What is a Janitorial Bond?

 

Janitorial Bonds are a type of Surety Bond that guarantees a contract for various cleaning services. These bonds are often required for contracts involving cleaning services for government buildings, educational facilities and even private properties. These bonds are a type of service contract.

 

Parties to a Janitorial Bond

 

The janitorial company responsible for fulfilling the contract is the Principal on the Bond. The Obligee is the building owner or property manager that is requiring the Bond. The Surety is the third party bond company that is guaranteeing the Principal's performance of the contract.

 

How to Obtain a Janitorial Bond

 

For most cleaning companies, Janitorial Bonds can be purchased quickly with just a personal credit check on the owner(s). 

 

However, large bonds and those covering contracts longer than one year will need to submit additional information. This information usually includes the following:

 

  • Current and past financial statements on the company.
  • Personal financial statements on the owner(s).
  • A completed application

 

There may also be additional information required such as a copy of the company's line of credit, resumes on key people and customer references.

 

For those that do not qualify under a standard program, the SBA Surety Bond Guarantee Program may be an option. This program may even allow for those with past bankruptcies to be bonded. Typically for this program to be an option, the contract must be for one year or less.

 

Janitorial Bond Unique Underwriting Considerations

 

Length of the Contract 

 

Surety Bond companies are leery of long term contracts. The longer the contract, the more risk to the contractor and the Surety Bond company. 

 

Janitorial Contracts often cover periods longer than one year. However, the longest contract many bond companies want to guarantee is two years. 

 

It is possible and common to guarantee Janitorial Contracts for longer periods, but the Surety company usually requires language in the contract to protect themselves. 

 

Normally each year after the second must be at the mutual option of the Obligee and Surety. This language has become common in these contracts over the years and most Obligees will accept them.

 

Labor

 

Labor is often one of the most significant risks in bonding a Janitorial contract. Getting labor can be a challenge, especially in the current market. Surety Bond underwriters will want to make sure that the company can get the labor to complete the contract.

 

Underwriters will also want to know how the company will manage increasing wages and labor costs. This risk becomes even more of a concern with longer contracts. Long term contracts with escalation clauses are preferred but getting an owner to include this is unusual.

 

Janitorial Bond Costs

 

The cost of Janitorial Bonds depends on the qualifications and financial strength of the Principal. Most contractors can expect to pay between 1%-3% of the contract amount each year that the contract is in place. Contractors using a credit based program will pay 3%.

 

Indemnity is Required for Janitorial Bonds

 

Janitorial Bonds require indemnity. That means that if the Bond company suffers a loss, they will seek reimbursement from the Janitorial company along with any other indemnitors. 

 

Janitorial Bonds are not insurance and many cleaning companies may not be familiar with how these bonds work. You can read more about indemnity and Surety bonds here.

 

Following the Covid-19, we may see an increase in companies that are requiring Janitorial Bonds for cleaning contracts. These bonds should be very easy to get for most contractors. Contact Axcess Surety anytime and we can answer all your questions related to these and other Surety bonds.

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