CSLB C-27 Landscaping ContractorPlanning and EstimatingMedium
A C-27 contractor is reviewing a request for proposal (RFP) for a commercial landscape installation. The RFP specifies that the contractor must provide a performance bond equal to 100% of the contract value. If the estimated project cost is $300,000, and the bond premium is typically 1% of the bond amount for this contractor's risk profile, what is the direct cost of the performance bond that should be included in the bid?
- A$30,000
- B$3,000
- C$300
- D$300,000
Show answer & explanationAnswer & explanation
Correct answer: B. $3,000
A performance bond guarantees the client that the contractor will complete the project according to the contract terms. The bond amount is 100% of the contract value, which is $300,000. The premium is 1% of this amount. Therefore, the direct cost of the bond is $300,000 * 0.01 = $3,000.
Why the other options are wrong
- A. This is 10% of the contract value, not 1%.
- C. This is incorrect, likely a calculation error.
- D. This is the full bond amount, not the premium cost to the contractor.
Performance Bond Cost
The premium paid by a contractor to a surety company for a performance bond, which guarantees the project owner that the contractor will fulfill their contractual obligations.
- Bond amount is typically 100% of contract value.
- Premium is a percentage of the bond amount.
- Cost is a direct project expense for the contractor.
Memory trick: Bond costs are 'Contract's Cover', 'Percent of Principal' is the price you'll pay!