Bid, performance and payment bonds for HVAC contractors

What each contract bond guarantees

How bonds come into play on an HVAC job

These examples are made up to show how each bond works. Real claims depend on the bond form, the contract and the facts.

Example scenario: a low bid with a missing controls package

An HVAC contractor comes in low on a county library's rooftop unit replacement. Two days later, the estimator realizes the number left out the building automation tie-in. If the contractor refuses to sign, the county can claim its loss against the bid bond, capped at the bond's face amount. Whatever the surety pays, the contractor owes back.

Example scenario: cash runs short halfway through a school renovation

A mechanical contractor is replacing air handlers and ductwork across a middle school over summer break. A supplier delay pushes the work into the fall, change orders go unpaid for weeks, and the contractor can't make payroll. When the district declares a default, the performance bond is what it calls on. The surety may arrange for the work to be finished, then seeks repayment from the contractor.

Example scenario: a duct fabricator goes unpaid on a city building

A sheet metal shop fabricates and delivers duct for a city office renovation, but the HVAC prime stops paying its invoices. The fabricator files a claim on the prime's payment bond. The surety reviews the claim, pays what's owed under the bond terms, and turns to the prime for repayment.

What performance and payment bonds cost

NASBP, the national association of surety bond producers, puts the combined price of a performance and payment bond at roughly half a percent to 3% of what the contract is worth. A small or newer contractor with little bonding history should expect the higher end, around 2% to 3%.

These are illustrations from NASBP's general range, not quotes. Your rate depends on the contract size, your financial statements, your experience with similar work and the surety itself.

How sureties decide your bonding capacity

Surety underwriters judge three things, often shortened to capital, capacity and character. For an HVAC shop, they'll usually want:

• your last three fiscal year-end financial statements, plus a current interim statement
• a work-in-progress schedule showing every open job, its billings and its expected profit
• your record on jobs of similar size and type
• the size of your bank line, plus the company's and owners' credit

Those answers decide your bonding limit, both per job and across all open bonded work. If you're new to bonding, look at the SBA's Surety Bond Guarantee program. For a qualifying small business it backs bonds on non-federal contracts as large as $9 million, and federal contracts as large as $14 million. That help isn't free. On a guaranteed performance or payment bond, you pay the SBA 0.6% of the contract price, on top of what the surety charges.

Which HVAC contractors need performance bonds

• Commercial mechanical contractors. Public schools, city buildings and many larger private projects ask for bonds as a condition of the bid. See commercial HVAC contractor insurance.
• Residential shops moving into light commercial. A first public rooftop unit replacement or a county building's change-out is often the first time a shop needs a bond. See residential HVAC insurance.
• Refrigeration contractors bidding public facilities. Walk-in coolers and reach-ins in schools and municipal buildings come through the same public bid process. See refrigeration contractor insurance.
• Shops planning their first bonded bid. Start building the financial record a surety wants a year before you need it. Our guide to starting an HVAC business covers the business plan side.

Get a quote for your HVAC business →

Performance bond requirements by state

Public-work bond thresholds are set state by state, so check the procurement rules for each state and owner you bid. Some states also bring bonds into the contractor license itself:

• Alabama asks new heating, air conditioning and refrigeration contractors to post a $20,000 bond with the state board, which the board's rule calls a performance bond. It's a license requirement, separate from any bond a project owner asks for. See Alabama HVAC contractor insurance.
• South Carolina caps the size of each job by license group, from $35,000 in Group 1 to unlimited in Group 5, and lets a mechanical contractor post a bond in place of a financial statement. See South Carolina HVAC contractor insurance.
• Virginia lets Class A and Class B contractor firms post a $50,000 bond instead of proving the required net worth. See Virginia HVAC contractor insurance.
• Arizona sizes the license bond for commercial specialty contractors by annual volume, so a growing shop's bond grows with it. See Arizona HVAC contractor insurance.

For the bonds tied to licenses and permits, see our page on HVAC contractor license bonds. Rules change, so confirm current requirements with the board or the project owner. Our state pages cover all 28 states where we're licensed.