Surety bonds for transportation contracts: bid bonds, performance bonds, and SBA's bond guarantee

A surety bond on a transportation contract is a three-way promise. Your company is the principal. The agency buying the rides is the obligee, the party the bond protects. The surety backs your promise to that agency. Public ride contracts use three kinds: a bid bond (you will sign the contract and supply the other bonds if you win), a performance bond (you will run the service as agreed), and a payment bond (you will pay the subcontractors and suppliers you use).

Federal rules generally leave service contracts unbonded, so a ride company is more likely to meet a bond requirement on a county, school district or state contract. This guide covers who asks, how a surety judges a small fleet, what it costs, and how SBA’s guarantee helps. Finding those contracts and answering them is covered in government NEMT contracts.

Which ride contracts ask for a bond

The answer depends on whose rules the buyer follows.

Federal agencies, including the VA

Federal buyers usually skip bonds on service contracts. FAR 28.103-1 says that, generally, agencies shall not require performance and payment bonds for contracts other than construction. A contracting officer can ask for a bid guarantee only if the contract also needs a performance bond (FAR 28.101-1). When a federal contract does call for a bond, the corporate surety has to be listed in Treasury Department Circular 570 (FAR 28.202).

Federal grant money does not add a bond either. The minimums in 2 CFR 200.326, bid guarantees of 5 percent of the bid plus performance and payment bonds each worth the full contract price, apply to construction and facility improvement contracts, not to rides. A county or transit agency spending grant money sets its own bond terms.

Counties buying rides for human services programs

A county can attach both bonds to ride work, and the terms can decide whether your proposal is read at all. Butler County, Ohio, put both bonds into its September 2022 request for proposals for transportation services (Contract No. 22-11-559):

• Bid bond. 5 percent of the Year 1 budget, as a surety bond, certified check, cashier’s check or money order, naming the county commissioners as obligee. The first stage of evaluation checked only two things: that the proposal arrived on time and that the bid bond was in it. A proposal without one was rejected.
• Performance bond. 10 percent of the contract amount, renewable each year and kept for the whole contract, due within 10 business days of the start. The county allowed an escrow account in place of the bond.
• Points for being bondable. One proposal question, worth 5 points, asked bidders to describe their ability to get and keep the performance bond.

School districts

Some states write school route bonds into regulation. In New Jersey, a contract or renewal for transportation to and from school must carry a performance surety bond worth no less than a full year’s contract amount (N.J.A.C. 6A:27-9.6). Each bidder also submits a guarantee of at least 5 percent of the bid, capped at $50,000, as a certified check, cashier’s check or bid bond. Guarantees come back within 10 business days of the bid opening, except for the three lowest bidders, and the performance bond goes in with the signed contract before service starts. The special needs student transportation guide covers how these routes are bought.

State broker contracts, where the bond protects you

Some state Medicaid programs make the broker post bonds, and one of them is written for transportation providers. Maine’s 2023 procurement for its non-emergency transportation brokers (RFP 202303047) required each winning broker to post:

• A payment bond worth 10 percent or more of the estimated annual amount the broker would pay all transportation providers, used to cover late payments to those providers if the broker could not pay them.
• A performance bond worth 10 percent or more of the estimated cost of the first contract period.

Bidders had to include letters from surety companies showing they could get both bonds, from a surety on the federal list and licensed in Maine. If your trips come from a broker under a state contract like this, the payment bond is a backstop worth knowing about before a payment dispute starts.

How a surety decides whether to bond a small fleet

A surety underwrites you before it signs anything, because a bond is not insurance. You sign an indemnity agreement promising to repay the surety for any claim it pays. The Surety and Fidelity Association of America lists who signs: the company seeking the bond and, when needed, other parties such as a spouse or domestic partner. Read that agreement as closely as the contract.

SBA describes the test as the surety’s credit, capacity and character requirements. In practice, the surety association’s guide lists the documents most sureties request:

• Social Security numbers for the owners, the company’s EIN, and a photo ID.
• Business and personal tax returns, and year-end financial statements.
• A list of completed projects or contracts, with job cost breakdowns.
• Business and trade references, and personal or business credit scores.

For a ride company, “completed contracts” means the facility, county or broker work you already run, with dates and monthly volume. “Job cost” means what a trip or a service hour costs you once drivers, fuel, insurance and vehicles are counted. A fleet that can show both gives the surety what it needs to judge whether the new contract fits.

The first call goes to a surety bond producer, an agent who places bonds with sureties. Start weeks before a bid is due. The surety reviews your documents before it issues anything, so a producer who has your financials in hand is ready when the bid posts.

What a surety bond costs

You pay two things on a bonded contract: the surety’s premium, and on an SBA-guaranteed bond, SBA’s fee.

• The premium. The surety quotes it after underwriting you. On bonds under SBA’s prior approval program, the price is capped at the rate your state insurance department authorizes, and the surety cannot make you buy other insurance from it (13 CFR 115.32).
• SBA’s fee. For a guaranteed performance or payment bond, SBA collects 0.6 percent of the contract price. SBA refunds it if the bond is cancelled or never issued, and there is no fee for a bid bond guarantee.

The SBA fee runs on the contract price, not the bond amount. As an example, take a one-year county contract worth $250,000 on Butler County’s terms. The bid bond is for $12,500 (5 percent) and the performance bond for $25,000 (10 percent). If SBA guarantees the performance bond, its fee is 0.6 percent of the $250,000 contract, or $1,500, in addition to the premium.

Check how the buyer treats that cost before you price the bid. Butler County’s RFP listed bonding costs among the costs that could not be counted when setting the reimbursement rate, so the bond could not be built into the rate. Cash in place of a bond, such as a cashier’s check or an escrow account, saves the premium but ties up money you may need for payroll and fuel.

SBA’s Surety Bond Guarantee program

SBA guarantees bonds for small companies a surety might otherwise turn down, and service contracts such as rides qualify. SBA’s definition of a contract covers any written obligation to provide services as well as goods or construction, so a ride contract counts (13 CFR 115.10). The main terms:

• Which bonds. Bid, payment, performance and ancillary bonds. Commercial bonds, such as license bonds, and fidelity bonds are not eligible.
• Contract size. Up to $9 million. For federal work the ceiling rises to $14 million if the agency’s contracting officer certifies that the bond needs SBA backing.
• Your size. You must be small under SBA’s size standards. For NAICS 485991, special needs transportation, the cap is $19.0 million of yearly receipts on average. For this program, a company in business three years or more may choose a three-year or five-year average (13 CFR 121.104).
• How much SBA covers. On bonds a surety sends to SBA for prior approval, SBA repays the surety 90 percent of what it loses when the contract is $100,000 or less, or when the company is HUBZone certified or its owners are socially and economically disadvantaged, veterans or service-disabled veterans. Otherwise SBA covers up to 80 percent.
• Timing. A bid bond guarantee expires 120 days after the bond is signed unless the surety tells SBA of a later date.

You do not apply to SBA directly. You work through a surety agency authorized for the program, and SBA’s surety bond page lists them by state. SBA also points transportation businesses to the Department of Transportation’s Bonding Education Program. Bonding and borrowing draw on the same financial statements, so the SBA loan guide is worth reading alongside this one.

License and permit bonds are a different product

Some bonds are not tied to any contract. A license or permit bond guarantees that you follow the law or the terms of a license, and the buyer is a state agency rather than a customer. SBA does not guarantee these.

• Virginia. A NEMT carrier needs a $25,000 surety bond or irrevocable letter of credit on file with the DMV, kept in place for three years after DMV issues the certificate. More on Virginia’s rules is in the Virginia guide.
• Florida. The state Medicaid agency may require a provider paid by fee schedule to post a bond of up to $50,000, or the total of its Medicaid billing for the current or latest calendar year if that is higher, before the provider agreement is signed, or later as a requirement for remaining enrolled. A new provider’s bond is based on what it expects to bill in its first year (s. 409.907). See the Florida guide.

Interstate for-hire carriers can also file a surety bond with FMCSA in place of the insurer’s filing, as the guide to USDOT numbers and operating authority explains.

Before you bid on a bonded contract

1. Read the bond section first. Note each bond’s amount, the required form, who may issue it, when it is due, how long it must last, and whether a check, letter of credit or escrow account is accepted instead.
2. Call a producer the week the solicitation posts. Bring your financial statements, tax returns and a list of current contracts.
3. Ask for a surety letter if the RFP wants one. Maine required a letter from a surety with every broker proposal.
4. Price the bond in, or know you cannot. Add the premium and any SBA fee, then check the buyer’s cost rules.
5. Calendar the renewals. An annually renewable bond that lapses can put you in default.
6. File the bond with your insurance papers. Keep each bond and the surety’s power of attorney with the insurance certificates you send customers.

Keeping the records a surety asks for

A surety wants to see the work you already run and what it costs, and those numbers come from your trip records. HealthRide’s payers report shows your work for each customer, and the trip log, which records times and GPS-verified miles for each ride, downloads as a CSV file or PDF. That turns the surety’s request for completed contracts and monthly volume into a short export. The reports page shows each one.