This page is all about the different types of bonds. This includes Performance, Bid and other Contract Surety Bonds.
So, what exactly does it mean to be a bond? For example, what is a surety performance bond? Well, a performance surety bond provides assurance that a contract will be completed in the event that a contractor defaults on the contract. The project owner (also known as the obligee) definitely wants the project to be completed. He hopes that the contractor (known as the principal) does the job. But if the principal doesn't, then the project owner will look to the guarantor (the surety company) to finish the contract.
There are four types of Contract Bond in Construction:
1. Bid Bond: Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.
2. Payment Bond: Ensures subcontractors, vendors and suppliers get paid for the work that they actually did pursuant to the terms of the contract.
3. Performance Bond: Ensures the contract will be completed in accordance with the terms and conditions of the contract. What does a performance and payment bond cost?
4. Ancillary Bond: Ensures the legal requirements that are integral to the agreement, but that are not directly performance related, are done as required in the agreement.
Quick Fact: Did you know that there are over 25,000 different types of surety bonds?
What are the other types of bonds?
Here is a short list:
- Probate and Court Bond. A probate bond protects the heirs or beneficiaries of an estate from any malfeasance or other problems caused by the administrator or executor. A court bond is usually needed for appeals or other specialized court needs.
- Maintenance Bond (Warranty Bond). This bond provides a guaranty that the work that was done by a contractor will meet the needs of the owner for a completed project. These bonds are typically set in time, like one year.
- Payment Bond. This type of bond is usually given by a contractor (usually a general contractor) and it provides that the material suppliers and subcontractors will receive payment. In contracts with the federal government (over $30,000), they are required. This rule is known as the Miller Act, and state laws with the same requirement are known as Little Miller Acts.
- Performance Bond. A performance bond simply requires that a company will perform according to the terms of the contract. See our page for more.
- Bid Bond. A bid bond is a bond that states that a contractor that bids on a project, if awarded that contract, will actually go ahead with the terms of the contract. Thus, if you get a bid bond, and then you get awarded the contract, that you can get a final bond and are willing to provide the services that were bid on. These are usually called only when the contractor has a change in their underlying financials or if they got a better job and are willing to pay the bid bond default rate and walk away.
- Site Improvement Bond. This is specific type of surety bond that only applies to a specific site. This can be tricky, especially when done for clean-up sites.
- Subdivision Construction/HOA Bond. These bonds are issued to protect the public regarding construction within specified subdivisions. Contractors have to get these bonds to make sure that they perform according to the terms of the contract as well as the terms of the subdivision specifications.
- Supply Bond. A supply bond is a specialty type of surety bond. It guarantees that the supplier of goods will provide all materials according to the terms of the contract between the purchaser and supplier.
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