What Are Surety Bonds?

Surety bonds that are written for construction projects are called contract surety bonds. A project owner (the obligee) seeks a contractor (the principal) to fulfill a contract. The contractor, through a surety bond producer, obtains a surety bond from a surety company. If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.

There are four types of contract surety bonds:

1. Bid Bond:

Provides financial protection to the owner if a bidder is awarded a contract but fails to sign the contract or provide the required performance and payment bonds.

2. Performance Bond:

Provides an owner with a guarantee that, in the event of a contractor’s default, the surety will complete or cause to be completed the contract.

Source: News Ladder

3. Payment Bond:

Ensures that certain subcontractors and suppliers will be paid for labor and materials incorporated into a construction contract.

4. Warranty Bond or Maintenance Bond:

Guarantees the owner that any workmanship and material defects found in the original construction will be repaired during the warranty period. Learn more about the fundamentals of contracting, bonding, and access to capital during our workshops throughout the year! Subscribe for updates.

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