Most Popular Bonds In Construction Contacts

Posted: February 19, 2019

Construction bonds are surety bonds commonly required for contractors who want to win and work on public or private construction contracts. Different types of bonds protect different parties and serve different purposes, but they all work in the same general manner. Learn more about some of the most popular bonds in construction contracts, and request a quote from Contractor Surety Group today.

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Popular Construction Surety Bonds

The most commonly required constructions bonds include:

  • Contractor license bonds. These are required by states, municipal agencies and other entities that license construction contractors. A contractor license bond acts as a guarantee that a contractor will operate in compliance with applicable laws and industry standards.
  • Bid bonds. These are required for a contractor to bid on public works projects valued at $100,000 or more under the federal Miller Act. They may also be required for state-level projects of a lesser amount or for some private project owners who want to protect investors. Be sure to check the contract terms. A bid bond must be submitted with the contractor’s bid and guarantees that the contractor will accept the job if awarded the contract. Learn more.
  • Performance bonds. These are often required in both public and private contracts. The bonds serves as a guarantee that the contractor will not default on the contract and will complete the project in accordance with all contract terms, applicable laws and regulations, and the ethical standards of the construction industry. Learn more.
  • Payment bonds. These are often required in conjunction with a contract or performance bond. The bond serves as a guarantee that the contractor will pay all subcontractors, laborers, and suppliers in compliance with the terms of the contract. Learn more.

There are other types of construction bonds, but these are the most commonly required. If you’re unsure what bonds you need for your project or have any questions, feel free to contact our knowledgeable agents.

How Do Construction Bonds Work?

There are three parties to every construction surety bond. These include:

  • The obligee that requires the purchase of the bond
  • The principal that is required to obtain the bond
  • The surety that underwrites and issues the bond

The obligee establishes the required bond amount and the specific terms of the contract. The principal must abide by all of those bond terms. Failing to do so gives the obligee or other party that is harmed financially as a result the right to file a claim against the bond.

When a claim is filed against a bond, the surety will launch an investigation to ensure that the claim is valid before paying the claimant up to the full bond amount. However, an indemnity agreement obligates the principal to reimburse the surety in full for the amount paid against the claim.

How Much Do They Cost?

Bond amounts vary, depending on federal and state regulations, the contract requirements, and the type of bond. Whatever the required bond amount may be, the principal will pay only a small percentage of that amount as the bond premium. The surety will determine that premium on a case-by-case basis. The market rate for most construction bond premiums for principals with good credit is 1-3%.

Get Bonded Today

Contractor Surety Group is an underwriting agency specializing in P&P bonds for developers/GCs including LIHTC (4% & 9% deals), market rate, HUD 221 (d) (4), and state-based programs. Whether you need a payment bond only or a payment and performance bond, our experienced professionals will gladly help you. Fill out our online quote form to get started.

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