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Janitorial Bonds and Cleaning Contracts

Janitorial or Cleaning Bonds. This is a photo of a person cleaning a building

Janitorial Bonds are often needed to guarantee the cleaning services of large government buildings, educational facilities and even private properties. COVID-19 is taking a dire toll on the world economy and putting a major strain on most businesses. One industry that has seen demand spike, however is the commercial cleaning industry. In fact, one report shows that demand in this industry is up 75% and this may continue to rise. Many businesses, schools and government facilities are looking for ways to disinfect their spaces and keep employees healthy. This may be an opportunity for commercial cleaning and janitorial companies. Under normal circumstances, these larger cleaning contracts may require bonding and these obligations are referred to as Janitorial Bonds. 

What is a Janitorial Bond?

A Janitorial Bond is a type of surety bond that guarantees a certain amount of cleaning services for a set period of time at a set amount. These are referred to as Service Contracts. The contract can usually either guarantee a set price for each time a service is performed or it may be a fixed price for regularly scheduled services such as every day for one year. 

 

Underwriting Considerations:

Janitorial Bonds. 3 underwriting considerations for contractors needing janitorial bonds. Colorful green chart with cleaning graphic and three bullet points

Length of the Contract – Like most surety bonds, the longer the contract, the more risk involved in a janitorial bond. We are seeing that things can change very quickly in the economic landscape. Usually if the contract is a year or less, these bonds are freely written. Most bonds companies are also comfortable at 2 years but anything longer can present more of a challenge. Typically, after 2 years, bond companies will want to see wording in the contract and on the bond form that gives all parties the ability to decide whether or not to renew for another period. An even better contract would include price escalations after the initial period to cover inflation and cost increases. An example of this would be a 2 year contract with 3 annual renewals at the mutual agreement of all parties. 

Labor = A large underwriting factor in these contracts is labor. How does your company get labor? Do you have a force or long time employees or will you have to keep hiring? This is usually an industry with high employee turnover and the bond company will want to make sure you can maintain enough people to meet your bonded obligation. They also want to make sure that you have enough money built into the project in the event that labor costs increase. 

Financial Strength – For small projects under $400,000, most janitorial contractors can easily obtain a bond if they have good credit. For a larger project, expect to provide financial statements on both the janitorial company and the owners personally. The larger the project, the more financial strength the company will need to qualify. Additionally, a bank line of credit always helps underwriters get more comfortable because it gives the company additional financial cushion if they need it. 

For janitorial contractors that don’t have great credit or that may not have significant financial strength, the SBA Bond Guarantee Program is a valuable option. With this program, an available bank line of credit is very helpful.

Janitorial Bond Costs

Like other surety bonds, the cost of Janitorial Bonds depends on the qualifications of the company and owners. 1%-3% is a fair range for most contractors. Keep in mind that unlike some contract bonds, this premium will renew every year of the contract. Contractors will want to keep this in mind for their project estimates. 

Indemnity Required

Janitorial Bonds are not insurance. Like all surety, they are a product of indemnity and the contractor will have to reimburse the bond company if a loss occurs. You can read more about indemnity here.

We hope this pandemic ends quickly and the World can get back to normal. Cleaning and sanitizing our facilities is going to be an important part of getting everyone comfortable with returning to their daily lives. Janitorial services should expect to remain busy for the foreseeable future and contractors can get themselves ready by preparing for bonding requirements now.