Contract bonds, which are used extensively in the construction sector by general contractors, are an assurance from a surety to a job’s owner (known as the obligee) that a basic professional (known as the principal) will not fail in their obligations under a construction agreement.
A good resource (other than ours, of course) is the Associated General Contractors of America. They provides a bunch of really good information for their members on these contract surety bonds. There are also a bunch of other sites that discuss bonds.
Contract surety bonds is simply a generic terms that includes a whole variety of bonds. These bonds include performance bonds, payment bonds, bid bonds, etc. Be sure to check out our other blog posts that explain those bonds.
Of course, there are a variety of bonds that don’t fall within the contract surety bond umbrella, which include supply bonds and subdivision bonds. You can also find some other weird varieties of bonds, like class and supply bonds.
Prices are determined through calculations that are based as a percent of the penalty in case of default (the maximum that the guarantee is accountable for). This ranges from around one percent to five percent, with the most credit-worthy contracts paying the least.
The bond commonly consists of an indemnity agreement where the principal specialist or others concur to indemnify the guarantee if there is a loss. The Small Business Administration may guarantee surety bonds. In a piece of great news, the 2013 eligible amount was tripled to $6.5 million that they will guarantee.