Contract Surety BondsContract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) is qualified to perform the work and will pay certain subcontractors, labourers, and material suppliers. Contract bonds consist of several bond types that cover a construction project from beginning to finish.
Contract Bonds Include
- Bid Bonds
- Performance Bonds
- Payment Bonds
- Maintenance Bonds
- Subdivision Bonds
Why These Bonds Are RequiredContract bonds are required as a way to protect the owner, county, state or the federal government. Contract Bonds guarantee that the contract will be performed and adhered to the requirements of the said contractual agreement. The bond acts as a financial instrument to be used to collateralize the work or contractual agreement.
Most companies are required to post contract surety bonds to win government bids and contracts, protecting the citizenry from defaults and breech of contractual obligations committed by the bonded contractors. The owner, county, city or state requiring the bond, can file a claim to reimburse for damages, or utilize the bond to pay for unfinished work or mistakes the contractor made.
2 Ways to Obtain the Bond
- Establish a bonding line of credit with a surety company allowing the contractor to request bid and performance bonds throughout the year within their approved bonding limit. This line of credit requires financial considerations, and historical project experience that is within their line of work.
- Smaller individual bonds can also be obtained through a shorter process of underwriting qualifications based on personal credit report and the contractors work experience.