If you're a successful contractor, you're dedicated to completing projects correctly, on-time, and on-budget using high-quality materials and craftsmanship while adhering to the terms in your building contracts.
However, potential clients may not know about your strong commitment and work ethic.
In fact, all federal contracts over $150,000 and most state contracts require builders to be bonded, and most private companies prefer contractors with surety bonds.
6 Types of Contract Surety Bonds
#1: Bid Bond
As the name implies, this type of contract bond guarantees that if you bid on a particular project and are awarded the contract, you will honor the terms of your bid and sign all contracts related to the project.
This prevents contractors from submitting a lowball bid and then changing the terms of the contract before work gets underway; or backing out of a contract after being awarded the bid.
#2: Performance Bond
A Performance Bond guarantees that you will adhere to all terms of the building contract and finish the job as promised.
A Performance Bond requires contractors to stay on-budget and meet the predetermined completion deadline.
#3: Payment Bond
A Payment Bond acts as a guarantee to your subcontractors and suppliers that you will pay them for services and materials they provide to you for the project.
This safeguards them against cash-strapped contractors who allocate all their resources toward honoring their building contract while failing to adequately compensate their subcontractors and suppliers.
#4: Supply Bond
A Supply Bond guarantees that you will be able to provide all needed materials to a contractor.
This type of bond may be relevant for contractors who also furnish building materials for projects on which they may not actually perform the work.
#5: Maintenance Bond
A Maintenance Bond guarantees that the workmanship you provide on a project is dependable enough to stand the test of time.
In other words, a Maintenance Bond protects the client against losses caused by shoddy labor practices during construction or materials defects for a predetermined length of time after the project is completed.
#6: Subdivision Bond
Also called an Improvement Bond, this is often required by a municipality or public agency before entering into a contract for a new development.
A Subdivision Bond basically requires the contractor to make certain improvements to the property or structure(s) over a certain period of time after the development is finished (at the contractor's expense) in order to be awarded the initial contract.
Do You Need a Contract Surety Bond?