Many construction contractors know that a number of projects require them to provide surety bonds which will guarantee their performance of the contract. Therefore, surety bonds are important in order to maintain a steady flow of projects for these contractors.
These surety bonds can be required by any client, from federal, state, or local government agencies to private owners.
Here are the four basic types of contract surety bonds:
- A bid bond provides financial confirmation that the bid has been submitted in good faith, and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds. This bond can be executed either in a dollar amount or percentage.
- A performance bond protects the obligee from financial loss should the contractor fail to perform the contract in accordance with the terms and conditions of the contract documents.
- A payment bond guarantees that the contractor will pay all subcontractors, labor, and material bills. A performance and payment bond is rarely executed for less than 50%, and most frequently 100% of the contract price.
- A maintenance bond guarantees for a specified period of time after completion of construction work that the contractor/principal will maintain his or her work in accordance with the contract warranty provisions.
Qualifying for a bond is very much like obtaining bank credit. The surety bond providers will want to know the contractor well before approving the bond, and financial strength and a good credit rating can result in a better rate.
If you're interested in obtaining a surety bond, contact us today. We're Humphries Insurance, based in Blue Bell, Pennsylvania.