A partial list of types of construction work that are covered by the Subdivision Surety Bond have to do with the site work:
- Water connections,
- Sewer utilities,
- Electric utilities,
- Street lights,
- Retention ponds,
- Landscaping, and
- Other things like intersection improvements, and retaining walls.
These are the items the bonds mainly cover but depending on the project, there could be additional items as well.
Depending on size, the governing body requiring the surety bond either has an engineer on staff or will hire an outside engineer. The engineer looks at the projects, determines what has to be done, and calculates and itemizes estimates. This is important information when underwriting these projects. You’re never going to know exactly, but the engineer’s estimate is at least going to give you an idea of what is being guaranteed. The engineer makes a recommendation for the bond amount to the governing or municipal entity, and then the amount of the bond required is determined.
Normally, the work that goes on outside of what is deeded over to the municipality or governing body is not bonded, with one exception: erosion. Many, if not most, entities will have a developer post an Erosion Bond. Heavy rains may start eroding the property, which can affect the other sites and the improvements that have been made. Dirt can run onto sidewalks, go into the drainage, go into neighboring properties, and cause flooding wherever it goes. Aside from that, if you’re building homes or something, an Erosion Bond strictly covers the infrastructure that’s going to be deeded over to the town, or the governing body.
Subdivision surety bonds can stay in effect until the improvements are finished, which can take several years — but in most cases, a developer can occasionally request a reduction in the bond. Some of the obligees (state, county, town, or other local government) will permit the developer to request one reduction. This is because the municipal/government entity must send their engineer out, inspect everything, and basically come up with another estimate. The process is expensive, so they don’t want to be doing that constantly.
Though it varies from obligee to obligee, most will allow for at least one reduction, and sometimes more. The reduction in the bond reduces the penal sum of the bond, which reduces the amount of money for which an obligee can make a claim. This can be an effective tool in reducing the risk associated with the bond but should be well-thought-out so that the request is made at the proper phase of the project.
PEDERSEN & SONS SURETY BOND AGENCY, INC.
15 Maiden Lane Suite #800
New York, NY 10038
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