Finding The Right Contract Surety Bond

There are many different types of bonds out there, if you are in need of a contract bond or if you are not sure which type of bond you need, call The ProSure Group, Inc. We can help you determine the type of bond you may need as well as match you with a dependable and experienced bonding company through our partnerships with more than 30 of the world's largest surety companies.

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What are the differences between Contract Bonds and Construction Bonds?

There is actually no significant difference between a construction bond and a contract bond. A contract bond is a type of surety bond that guarantees the fulfillment of a contract. Contract bonds can be used in many different industries for many different reasons, but are most widely used in the construction industry. The construction industry uses contract bonds to secure guarantees that projects will be completed on time and on budget according to the terms of the project’s contract. If a project is not completed according to the contract, and a claim is made on the bond, then the surety company will step in to mitigate any potential losses to the project owner/Obligee.

Types of Contract Bonds

Construction Bonds

Construction bonds are the types of surety bonds that are commonly used in the construction industry. These bond securities are used to guarantee the performance of contracts and the payment of materials and suppliers. A few examples of construction bonds include performance bonds, payment bonds, and bid bonds.

Bid Bond

Project developers request bid bonds in order to ensure contractors are submitting serious bid proposals and they have the financial credentials to acquire it. If the contractor declines the appointment after the developer has already chosen them, the contractor may be required to pay the difference between his offer and the next highest bid.

Performance Bond

In order to guarantee that contractors will complete their projects in accordance with their contract, project developers can make a claim on a performance bond. This claim will give them access to funds that allow them to hire a second contractor to complete the job. The Federal Miller Act requires that performance bonds are to be used on all projects that are federally funded worth at least $150,000.

Payment Bond

If a lead contractor goes bankrupt before a project is completed, payment bonds guarantee workers, suppliers and subcontractors will get compensated for their services. The Federal Miller Act requires payment bonds for all projects worth at least $150,000 that are federally funded and are often affiliated with performance bonds.

Supply Bond

These bonds require suppliers to provide the materials and equipment outlined in the purchase order. If they do not, the supply bond can be used to reimburse the buyer for the resulting loss.

Maintenance Bond

Maintenance bonds guarantee the quality of work completed on a project. If the materials or workmanship were poor, the bond will reimburse the amount for the required repairs.

Subdivision Bond

Subdivision bonds ensure contractors will build and renovate the public structures within subdivisions in accordance with local specifications. Claims can be made on these bonds to complete the subdivision project if the contractor fails to do so.

Site Improvement Bond

Site Improvement bonds are associated with projects that update structures that already exist. They make sure that the improvements agreed upon in the contract are completed to project specifications; claims will make certain the finances are available to complete renovation.

Contractor License Bond

Contractors are required to purchase these bonds before they receive their contractors licenses at the state, county and/or city level. They guarantee that contractors follow the licensing laws and regulations that apply to contractors. The contractor license bond is a license and permit bond but because they are used by construction professionals, they are often considered a contract bond.

Completion Bonds

Completion Bond is a generic term to describe a surety obligation which is not dependent or contingent upon the fulfillment of any compensating action by the indemnified entity. An example may be a Subdivision Improvement Bond whereas the developer is required by the Obligee to construct the required improvements but will not be paid for this work.

Warranty Bonds

Warranty and Maintenance Bonds are closely related but are not necessarily identical. Warranty Bonds can become more expansive when they are requested from a Principal which did not perform the original work and/or if they include such assurances as efficiency, or other operational, guarantees and are required to remain in force for extended time periods.

Right of Way Bonds

Right of Way (ROW) Bonds can be required by any public jurisdiction which is empowered to issue a permit allowing a temporary intrusion into a public right of way. ROW bonds are usually needed by contractors when the installation of utilities or the construction of driveways and sidewalks relating to a construction project require the closing of a traffic lane or the destruction of road pavement.

Service Contract Bonds

Any contract can include a bond requirement and not all bonded contracts involve construction. Common Service Contracts frequently requiring bonds include Janitorial Contracts, Food Service Contracts, Mowing Contracts, and Property Management Contracts.

P&P Bonds For LIHTC

Payment & Performance bonds can be required for affordable housing projects under the federal Low Income Housing Tax Credit (LIHTC) program.