• The 5 Types of Construction Bonds

    The 5 Types of Construction Bonds December 17, 2015

    A construction bond, also referred to as a construction or contract surety bond, guarantees to the obligee (the party paying to have a project completed) that the principal (the contractor or service provider) will carry out the details of said project based on the terms of a written contract. In other words, the bond creates a guarantee that the terms of the work will be completed.

    Construction bonds are often required for any Federal construction projects valued at $150,000 or more. Many state and city governments, and even some private entities, have a similar requirement. Service contracts and supply contracts may also require a bond.

    Bid Bonds

    Bid Bonds guarantee that a contractor will perform work at the amount agreed upon in the bid. These bonds are generally used by project owners to pre-qualify contractors submitting proposals.

    Maintenance Bonds

    A Maintenance Bond guarantees the work against possible defects for a predetermined period of time, often including protection for workmanship and materials.

    Payment Bonds

    Sometimes used in conjunction with a performance bond, which assures the work to be done will be satisfactory, a Payment Bond guarantees that the contractor will perform the terms of the contract and protects the project owner from financial losses, should the contractor fail to uphold the terms and conditions of the project. This is often submitted by bid winners.

    Site Improvement Bonds

    A Site Improvement Bond is a type of bond is often used to ensure that a landowner will carry out mandatory improvements to an existing building, as issued by local authorities such as a municipal government.

    Subdivision Bonds

    Similar to a Site Improvement Bond, a Subdivision Bond guarantees that mandatory public improvements with be completed by a landowner. Unlike a Site Improvement Bond, this only applies to new structures and developments.

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