Performance Bond: Cost, Benefit, and Paradox for Public Highway Agencies
In the highway industry, one of the main methods to prequalify a contractor is to determine if a performance bond can be secured from a commercial surety. The current performance bonding system does not differentiate between high-performing and marginal contractors. Two companies with the same level of financial assets have the same capability to furnish performance bonds. This paper details an analysis of the benefits and costs of performance bonds and reports the results of a study that used case studies in five state departments of transportation (DOTs): Iowa, Oklahoma, Utah, Virginia, and Washington. Structured interviews were also conducted with members of the construction contracting sector and the surety industry. The results showed that although average default rates were less than 1.0% and a performance bond added an average of 1.5% to the cost of every construction project, DOTs and contractors were reluctant to eliminate performance bonds from the industry. There lies a paradox: construction project owners are willing to pay an additional 1.5% to protect themselves from an event that occurs less that 1.0% of the time.
- Record URL:
- Summary URL:
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Availability:
- Find a library where document is available. Order URL: http://worldcat.org/isbn/9780309294997
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Authors:
- Kraft, Elizabeth
- Park, Heedae
- Gransberg, Douglas D
- Publication Date: 2014
Language
- English
Media Info
- Media Type: Print
- Features: Figures; References; Tables;
- Pagination: pp 3–9
- Monograph Title: Construction 2014
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Serial:
- Transportation Research Record: Journal of the Transportation Research Board
- Issue Number: 2408
- Publisher: Transportation Research Board
- ISSN: 0361-1981
Subject/Index Terms
- TRT Terms: Benefit cost analysis; Bonds; Construction projects; Contractors; Quality of work; State departments of transportation; Surety bonds
- Geographic Terms: Iowa; Oklahoma; Utah; Virginia; Washington (State)
- Subject Areas: Administration and Management; Construction; Highways; I10: Economics and Administration;
Filing Info
- Accession Number: 01506372
- Record Type: Publication
- ISBN: 9780309294997
- Report/Paper Numbers: 14-3025
- Files: PRP, TRIS, TRB, ATRI
- Created Date: Feb 3 2014 9:17AM