Even though surety bonds are common and often required on construction projects, many contractors don’t understand their purpose. Surety bonds are extremely important and are often part of the contractor bonding requirements. They add an additional layer of protection for the project Owner, General Contractor (GC), and trade contractors.
Below are 4 common contract bonds that a general contractor may require you to obtain in order to work on their construction project:
Bid Bond
A bid bond guarantees that a trade contractor will honor their bid if awarded. General Contractors may require this bond to ensure your commitment to the bid. This bond is typically purchased by the trade contractor when getting bonded on a construction project.
Performance Bond
A performance bond guarantees that the contractor will complete the project according to the contract’s terms & conditions. For trade contractors, this bond protects the general contractor by ensuring you complete the scope of work outlined in your subcontract. It is typically purchased by you after being awarded the job if required by your subcontract.
Payment Bond
A payment bond ensures that the contractor will pay all subcontractors, laborers, and material suppliers in accordance with the contract terms. As a trade contractor, depending on your subcontract, you may be required to purchase this bond after being awarded the job. It protects your lower-tier subcontractors and suppliers by guaranteeing they are paid according to the terms of your subcontract.
Maintenance (or Warranty) Bond
A maintenance bond covers defects in workmanship or materials that arise after project completion, typically during a specified warranty period. As a trade contractor, you may be required to purchase this bond after being awarded the job, depending on your subcontract. It guarantees that you will address and correct any covered defects during the maintenance period.
Understanding how surety bonds work and which ones may be required is essential for protecting your business and maintaining strong relationships with General Contractors. At TSIB, our team of surety experts helps you navigate the complexities of contractor bonding requirements, from bid bonds to performance and payment bonds. Whether you're new to bonding or looking to strengthen your existing program, contact us today to speak with one of our experienced Surety Advisors and ensure you’re prepared for all your construction bonding needs.
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