Quick Guide Construction Surety Bonds

A quick FAQ

What is a Construction Surety Bond?

A surety bond is an agreement under which one party, the Surety (Insurance Company), guarantees to another party (Owner/Obligee), that a third party (Principal/Contractor), will ensure the fulfillment of a contract in accordance with the contract documents. If the third party defaults, the surety is obligated to find another contractor to complete the contract or – failing this – compensate the project owner for the financial loss incurred.

Types of Construction Related Bonds we assist clients obtain through Surety Companies:

  • Bid Bonds – Bid bonds are designed to guarantee that a contractor provides any other required performance bonds. This type of bond also assures the project owner that the contractor will fulfill the contract at the given bid price.
  • Performance Bonds – Performance bonds, which are a type of surety bond, are designed to guarantee that contractors complete a project or fulfill certain obligations. These bonds provide project owners with insurance in various forms against the failure of the contractor to fulfill certain duties.
  • Payment Bonds – A payment bond is used to ensure that all of a contractor’s obligations to suppliers, laborers and subcontractors will be fulfilled in the event that the contractor defaults.
  • Supply Bonds – This type of bond is used to guarantee that a supplier will provide certain materials or supplies. A supply bond protects the purchaser in a contract from loss in the event that a supplier does not fulfill any contractual obligations.
  • Maintenance Bonds – Sometimes called warranty bonds, maintenance bonds ensure that the contractor will provide quality materials and workmanship. This type of bond operates for a specified amount of time after a project’s completion, and it protects the owner of a project against defective work.
  • Site Improvement Bonds – A site improvement bond is often required by a government agency to protect public property from any losses associated with a private project. This type of bond guarantees that the developer associated with a particular project will completely restore any public property that is damaged or altered during the project.
  • Subdivision Bonds – Subdivision bonds may be required by a local government in order to ensure that mandatory public improvements are made to their property. These bonds can be required of any developer, builder, or even a landowner to ensure that they meet the requirements of the local authority.

When do I need a Construction Surety Bond?

Surety bonds are typically required on Public and Federal construction projects. Bonds are also frequently required in the private sector by General Contractors.  They require Subcontract Performance and Payment Bonds on their bonded projects.

What qualifications do I need to obtain Surety Bonds?

Before issuing a bond, the Surety Company must feel comfortable that a contractor is of good character and has the experience and financial resources to perform the job according to the contract documents and specifications.

Are there fees for Construction Surety Bonds?

Surety Bond Companies calculate the premium they charge for surety bonds based on three primary criterion:

  1. Bond type
  2. Bond amount
  3. the Applicant’s risk

We understand you may have many more questions, general and specific to your bond needs, so please contact our professional and friendly staff that will guide you through the bonding process and assist you in establishing a bonding relationship with a Surety Company.

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