Right of Way Bonds
A right of way bond is a surety bond that a city, county or state transportation department may require before it issues a permit to work in a public right of way, such as a street, alley, sidewalk or curb. Depending on the agency, it may be called an excavation, street opening, street obstruction or encroachment bond. The bond guarantees that you will follow the permit's conditions and restore the right of way to its original condition when the work is done.
How a right of way bond works
The bond is an agreement among three parties: you, the contractor or property owner doing the work (principal); the agency that issues the permit (obligee); and the surety that issues the bond. For example, if you cut into a city street for a utility line and leave the trench unfinished or patch it poorly, the city can make the repairs and claim the cost against your bond. If the claim is valid, the surety pays up to the bond amount.
Bond amount and your premium
The agency that issues the permit sets the bond amount. Some cities use a flat minimum, such as $5,000 or $10,000, while others base it on the estimated cost to restore the street or sidewalk. Larger projects may need a higher amount. The bond amount is the most the surety will pay on claims, not the price you pay. Your premium depends on the surety's underwriting, including your credit and business finances. Request a quote rather than relying on a fixed price or percentage.
Work that may require a right of way bond
Requirements vary by city, county and state, but a bond is commonly required for:
- Excavating, trenching or boring under a street, alley or sidewalk.
- Installing or repairing utility lines, such as water, sewer, gas, electric or fiber.
- Building or replacing driveway approaches, curbs, gutters or sidewalks.
- Placing dumpsters, equipment or materials in the street, or temporarily closing a lane.
Single permit vs. annual bonds
Some agencies require a separate bond for each permit. Others let contractors who work in the right of way often file one annual bond that covers all of their permits for the year. If you regularly work in more than one city or county, you may need a bond with each one, since each agency sets its own amount and form.
What happens when a claim is filed
If work under your permit isn't finished or restored properly, the agency can complete or correct the work and make a claim against your bond for the cost. The surety investigates. If the claim is not valid, it is denied. If it is valid, the surety pays the agency up to the bond amount and you must repay the surety. Unlike general liability insurance, a bond does not take the cost off your hands.
When the bond is released
A permit bond usually stays in force until the agency inspects and accepts your restoration work. Some agencies hold the bond for a set period afterward, often one or two years, to make sure the repair holds up. Annual bonds renew each year, and you pay a premium at each renewal.
Not sure which bond you need?
WWIS is based in Litchfield Park, Arizona, is licensed in all 50 states and has helped contractors with right of way and permit bonds for more than two decades. Call 888-518-8011 or email [email protected] and we'll help you find the right bond for your permit.
If you or your business needs help in obtaining a surety bond or commercial insurance give us a call!