Contractors many times are required by the owner or obligee to provide a contract bonds – also known as a payment or performance bond or a construction bond – which acts as a guarantee that they abide by the terms of the contract while also guaranteeing that they pay all related subcontractors and suppliers that otherwise may have the ability to lien the project. Suretyship is a specialized guarantee established between three parties – a principal (contractor), obligee (owner or general contractor) and the surety.
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These all serve the same purpose of protecting the obligee, but are used differently depending on the circumstance:
Protects the obligee by ensuring the principal will enter into the contract and provide the required payment and performance bonds if awarded the contract.
Ensures the contractor’s performance of the contract and protects the obligee from the ramifications and damages should the contract not be fulfilled under the terms of the agreement. A Performance Bond is usually coupled with a Payment Bond.
Ensures proper, valid payments to the suppliers, laborers and subcontractors hired by the contractor to leave the obligee/owner with a lien-free project. A Payment Bond is usually coupled with a Performance Bond.
Ensures that the materials listed in a contract will be supplied and in a timely fashion to the purchaser under the terms of the agreement.
Ensures that any defective work or materials will be corrected by the contractor within the time specified in the contract, typically one year, but may be extended well beyond.
Same as the maintenance bond, wherein it guarantees that a contractor will resolve all warranty issues on materials and work before any warranty expires.
Just another name for a Contract Bond or Performance and Payment Bond. Sometimes the Payment and Performance Bond are combined into one bond and as such may be called a Construction Bond or Contract Bond.