Bonds 101

A surety bond is a three party relationship between the contractor (principal), owner (obligee), and surety company (guarantor). A surety bond is not an insurance policy. A surety bond guarantees that a contractor completes the work stated under the contract and pays the appropriate suppliers and subcontractors. If the contractor (principal) fails to complete the job as stated in the contract they, along with the surety company (guarantor) are held liable to complete the project in accordance with the specifications.  In the event that a contractor causes the surety a loss the surety can recoup their loss from the corporation and it’s personal indemnitors. There are four types of surety construction bonds:

Bid Bonds- This bond allows a contractor to bid on public work. The bid bond guarantees that if the contract is low bidder they will supply a performance & payment bond to the owner (obligee).

Performance Bonds- This bond guarantees that the contractor will complete the work exactly stated in the contract.

Payment Bonds- This bond is supplied in conjunction with the performance bond. This bond guarantees that the contractor will pay his sub contractors and suppliers on the bonded project.

Maintenance Bonds- This type of bond is written after the project is completed. It guarantees that the work is completed satisfactory and will not fail after the contractor leaves. This bond is usually in force for a year after the contract is complete.