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Security Guard Performance Bonds

June 11, 2022

Security Guard Performance Bonds

 

Security Guard Companies often need Performance Bonds. Learn what these bonds are, what they guarantee and how to get one.

 

What is a Security Guard Performance Bond?

 

A Security Guard Performance Bond is a type of Contract Surety Bond sometimes referred to as a Service Contract. These bonds guarantee that a company will provide Security services at a specified price, level and length of time, according to a contract. 

 

A security guard performance bond protects the party purchasing Security Guard Services by ensuring that they will not need to pay additional costs to have their contract fulfilled. 

 

What Are the Parties to a Security Guard Performance Bond?

 

A Security Guard Performance Bond is a three party agreement. The Security Guard Company providing the guard services is known as the Principal. This is the party providing the bond and agreeing to provide services at a specified price. The Obligee is the party purchasing Security Guard Services and getting the benefit of the Bond. The Surety is the third party bond company that is guaranteeing that the Security Guard Company performs the obligations under the contract. If the Security Guard Company does not, the Surety may have to step in and make cash available to fulfill the contract.

 

When are Security Guard Performance Bonds Required?

 

Security Guard Performance Bonds are often required when guard services are needed on Public properties because of The Miller Act and Little Miller Acts. However, any property owner could ask for a Security Guard Performance Bond to protect their contract. 

 

Security Guard Performance Bond Underwriting Considerations

 

Four colorful boxes with considerations for underwriting security guard performance bonds. The background is security guard riding down an escalator

 

Time

 

Time is an important factor for underwriting Security Guard Performance Bonds. The longer the contract, the more risk to Security Guard Company and the Surety Bond Company. Labor wages, fuel, insurance costs and most expenses usually increase over time. Therefore, a surety bond company prefers Security contracts of one year or less. 

 

If a Security Contract exceeds one year, surety bond companies often prefer that the contract is renewable at the option of both parties. For example, a surety bond company may write a five year Security Guard Performance Bond as long as it is a two year contract with three additional one year renewals at the option of all parties. 

 

Labor

 

Security is risking business. In addition to labor costs, the Security Guard company has the risk of being able to recruit and maintain security guards. The Surety Bond Company will want to make sure the Security Guard Company has adequate staff to complete any contract before writing a Security Guard Performance Bond. If they have to recruit new guards to complete the contract, there is a risk that those guards will cost more than they estimated to fulfill the contract.

 

Proper Insurance Coverage

 

Insurance Claims against Security Guard Companies are common. The Surety Bond Company will want to make sure that the Security Company has adequate insurance coverage to defend themselves against claims and pay them if necessary. This is important to bond companies because an uncovered claim could have a devastating effect on the Security Company’s balance sheet, which could affect their ability to complete a bonded contract. 

 

Financial Strength

 

A very important part to writing Security Guard Performance Bonds is a Guard Company’s financial strength. A surety bond company will want to make sure that the Security Company has adequate cash, working capital and net worth to fulfill the contract obligations along with their non-bonded obligations as well. 

 

Experience

 

Experience is also important to underwriting Security Guard Performance Bonds. The Surety Bond Company will want to see that the Security Company has successfully completed contracts of similar size and scope in the past. Larger projects present more risk and surety bond companies are usually reluctant to bond Security contracts more than twice as large as what a Security Company has previously completed. 

 

What Does a Security Guard Performance Bond Cost?

 

A Security Guard Performance Bond generally costs between 0.5% - 3% of the bonded contract amount. The cost depends on the financial strength of the Security Guard Company and the bond company’s filed rates. 

 

However, unlike many other types of Performance Bonds, a Security Guard Performance Bond Premium is usually due every year that the contract is in force. For example, a three year Security Contract will have a bond premium due upfront and on each of the two following years. Learn more about Performance Bond Costs here

 

Other Security Surety Bonds May Be Needed

 

Security Guard Performance Bonds guarantee the completion of a specific contract. Usually Security Guard Companies will need other surety bonds to operate such as a Security Guard License Bond.

 

Security Guard License Bond

 

A Security Guard License Bond is required by many Federal, state and municipalities to maintain a Security Guard License. These bonds guarantee that a Security Guard or Guard Company uphold the laws and statutes associated with their license. If the Guard or Guard Company act outside of the rules of their license, a claim can be made against the bond.

Unlike Security Guard Performance Bonds, these license bonds usually require only a credit check to obtain them. They are low cost and easy to get. 

 

Indemnity is Required for Surety Bonds

 

Security Guard Companies should be aware that Security Guard Performance Bonds and License Bonds are written on the Principle of Indemnity. That means that if the surety bond company pays a valid claim, they will seek reimbursement for the loss from the Security Company and any indemnitors. These bonds ARE NOT INSURANCE. Security Guard companies can read more about indemnity here

 

Security Guard Performance Bonds are required on many Public and Private projects. They are easy to obtain for most Security Guard Companies. Contact Axcess Surety for all your Security Guard Surety Bond needs. Security Companies may also visit our FAQ page on Surety Bonds or our Learn Page for more information on Surety Bonds.

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