Subdivision Bonds

Subdivisions represent a large portion of construction revenue in recent years, due in part to recent trends towards “planned communities” which allow subdivision residents to shop, engage in recreational activities and even work and send children to school within their community area. Planned communities are generally part of a larger metro area and can provide a sense of being a part of a smaller and close-knit population as well as the convenience of amenities in close proximity to a resident's home.

Construction companies thinking about getting into the subdivision development business absolutely need to consider many factors, including the current state of the economy, as many projects are not as financially solvent as they once were. Contractors need to ensure that they are financially able to complete the project. Another crucial consideration closely tied to financial issues surrounding subdivision development is the requirement of a subdivision surety bond.

Subdivision surety bonds are required by the state or locality in which the subdivision will be built and essentially ensure that the subdivision will be built according to a mutually agreed upon contract and that the project will be completed in a timely manner. Subdivision bonds cover all aspects of construction including streets, houses, even gutters and drainage ditches. They can often also serve to make sure that everyone is anticipating the same final product and is on the same page about construction. The bonds also make it possible to file plats with the county or city in advance of the project being completed.

If, for some reason, the project fails to be completed or there is a contractual problem, a claim is made against the bond. If the claim is found to be a valid one, the contractor must pay some or all of the bond's face value. Subdivision bonds can take many forms including cash, letters of credit issued by a bank, and CDs. However, the preferred method is to purchase a bond through a company specializing in selling surety bonds of all kinds. This way, if there is a claim on the bond, the surety company will handle the bond's dispersal and make sure that everything is properly executed and ethically handled.

Subdivision bond amounts vary from state to state and often depend on the size and scope of the project at hand. The contractor will undergo an application process from the surety bond company to make sure that he or she is financially solvent enough to cover the bond should there be a claim, and rates will vary according to credit score.