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What are construction bonds?
A construction bond is really just a type of a performance bond. This type of surety bond is utilized by an owner of a construction project – thus the term construction bonds. It protects against a catastrophic event that would cause a major disruption of the construction project, such as the inability to complete the job by the general contractor, or the general contractor’s inability to pay his subcontractors, or finally the bankruptcy of the contractor. In addition, a construction bond can be a warranty bond to make sure that the job actually conforms to the specifications of the contract.
Like a typical surety bond, there are three parties to the bond. First, there is the surety company. This is the company that is guaranteeing the work of the general contractor. The general contractor is the obligor. The person that would be the beneficiary of the bond from a failure of the obligor (the general contractor) is the obligee – the owner of the property.
These are many times also called a Contract Bond.
See our performance bond page for more.