A construction bond is a type of surety bond used by investors to protect themselves against adverse events that may prevent or disrupt the completion of a project. The builder may fail to complete projects due to the inability to meet contract specifications or insolvency.
Bonds are necessary prerequisites for any project, as many things can go wrong in a massive construction project. It is of paramount importance that projects of particular sizes, like large government and public works project, acquire bonds. If you are ready to get a construction surety bond, call us today.
What are the types of construction bonds?
Bid Bond – A bid bond is a guarantee that assures the project owner you are capable of undertaking the job after selection in the bidding process. The project owner is more than comfortable to award the project based on the presence of a bid bond knowing fully well that they will collect compensation from the construction bond.
Performance – A performance bond protects the owner of the involved contractor fails to perform, or protects the owner from losses emanating from poor performance, or is unable to deliver the work as obligated in the contract. Moreover, in other circumstances, the contractor may declare himself bankrupt so the surety is responsible for compensating the owner for any loss incurred.
Payment – A payment bond is a three-way contract that brings together the owner, the involved contractor and the surety firm into an agreement that all subcontractors, material suppliers, and laborers will be paid making the project lien free. This bond is rare and it’s billed at 50 percent of the regular premium.
Maintenance – These types of construction bonds provide a warranty after project completion in cases of defective materials, poor artistry, and just like warranties, it’s time bound. If a project is found to be defective within the prescribed period, the owner receives the bond amount for repairs or replacement of defective parts.
Subdivision – Subdivision bonds are acquired for new projects by some local governments when a contractor starts working on a subdivision of a building project. It ensures that the contractor will complete structures within the subdivisions like electrical upgrades, sidewalks maintenance, drain water systems, sewer systems according to specifications and within the stated timeline. Failure on the part of a contractor triggers the bond payment to complete the remaining works.
Site improvement – Site improvement bonds are acquired by contractors when undertaking improvement on a current site rather than on a new building. The bond will compensate victims of fraud on the part of the contractor. It shares similarities to subdivision bond, but subdivision bonds are for new buildings.
Contractor license (CLB) – CLB or permit bonds are classified as construction surety bonds that serve the purpose of all parties involved in a contractor project. This bond assists all parties involved in the case of an unethical business decision. It protects the many parties, including the owner/investors of a project and the bond issuing firm. A contractor must purchase a contractor license bond to qualify for the contractor licenses at the city, county and state level. If one of the parties is affected by the wrong decisions, they can file against the bond for financial compensation.
Supplier – The supply bond guarantees the supplier will be able to meet his obligation of supplying materials as prescribed in the purchase orders. If a supplier reneges the agreement, then the Bond is released to compensate the purchaser for the losses incurred. We can write all types of construction bonds. We do construction surety bonds fast in your state.
The Miller Act is a federal Act that requires every contractor bidding for a government project to post a payment bond and a performance bond covering all material and labor. These bonds must are for federal projects worth $100,000 or more. The Federal Acquisition Regulation is empowered to request additional bonds for contracts worth $25,000 and $100,000.
NFP has been in the bonding businesses since 1984. We know how to get you bonded the right way with the right solution.