Written by: Peter Harrison

Category: General

Published: August 16, 2024

A right of way bond is a type of surety bond that guarantees work performance in a public space known as the “right-of-way.” This is typically a requirement for contractors who need to perform work within this particular area, particularly before being granted a permit. The specific requirements vary by municipality.

Whether you’re a contractor that works in right-of-way zones, or are seeking this type of bond in order to get a permit for work on an infrastructure project, it is important to understand the complexities of these bonds. In addition to the legal requirements, mitigating risks and working with reputable surety companies are key in securing this type of bond successfully.

The basic purpose of a right of way bond is to ensure that the governing agency (obligee) is compensated in the event that the contractor doesn’t follow permit regulations or contract stipulations. In the case that the obligee is harmed, the bond’s funds will provide financial compensation up to the maximum bond amount.

This can include any expenses related to the repair or replacement of existing underground and above-ground facilities including electric power, communications, poles, gas or water lines. Generally, these types of bonds are required by state and local transportation departments and/or utility authorities in order to obtain a permit for any construction activity that needs to be performed in a right-of-way.

Typical rates for this type of bond are between 1-3% of the total bond amount. The exact rate you will be charged can depend on your personal credit score and financial history, the size of the bond obligation and any additional coverage needed such as for debris removal or indemnity in the event of property damage.

If a claim is made against the bond, the surety company will investigate the details of the claim and will pay up to the maximum bond amount. Then, they will pursue reimbursement from the contractor (principal) through any means necessary. The principal must then repay the surety company for any sums paid out, plus interest and fees.

In order to qualify for a right of way bond, contractors must meet certain minimum requirements such as financial statements, experience and past project history. They must also agree to adhere to safety standards and environmental guidelines as outlined by the issuing authority. In addition, a credit check will be conducted to evaluate the applicant’s risk profile. In the case of larger bonds or longer-term obligations, a financial statement and/or personal interviews may be needed. It’s important for contractors to consider these additional costs when determining their overall budget for a given construction project. By following the required steps, mitigating risks and partnering with a reputable surety company, contractors can successfully secure right of way bonds for their projects. This helps to protect both the project owner and the public alike. If you’re interested in learning more about right-of-way bonds or need help obtaining one, contact us today for a free consultation.