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What is a Contract Bond?

Contract BondThe contract bond is a guarantee the terms of a contract are fulfilled. If the contracted party fails to fulfill its duties according to the agreed upon terms, the contract “owner” can claim against the bond to recover financial losses or a stated default provision.

Widely used by the construction industry, contract bonds are also required in many commercial contracts within other industries such as service, supply, technology development and manufacturing. However, all contract bonds guarantee the performance and or payment of the obligations under contract.

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Types of Contract Bonds

  • Bid Bond
  • Maintenance Bond
  • Payment Bond
  • Performance Bond

Contract Bond Requirements Can Include:

  • Management Contracts
  • Maintenance Agreements
  • Completion Orders
  • Commercial Services Contracts
  • Commercial and Construction Supply Contracts

There are generally 3 parts to the contract bond process; bid bond, performance bond and payment bond. The three parts are used together but are all completely different.

What is a Bid Bond?

Issued as part of a bidding process of the contract owner known as the “Obligee”. This is a good faith guarantee that says if the bidder is awarded the contract the bidder will fulfill the contract according to the bid terms including the posting of the performance bond. Bid bonds are usually between five and ten percent of the full contract amount.

Once the bid bond has been accepted and the contract is awarded most contracts allow for at least 10 days to supply the final bond.

What are Payment and Performance Bonds?

These are two separate contract bonds guaranteeing two separate issues, both are not always required and sometimes written as one bond but are still two separate obligations.

The Performance Bond is used to guarantee the schedule, workmanship and completion of the contract outside of the penalties and corrective strategy laid out in the contract.

The Payment Bond is used to protect the Obligee from the Principal’s subcontractors and suppliers. When payment is not made to a contractor’s subs or suppliers, they have a right to file a lien against the total project. The payment bond protects the Obligee for having to pay twice.

Qualifying for a Contract Bond is All in the Presentation

It is imperative you have the right group representing you or your client to the surety company. A good bond partner should be able to see issues up front without a lot of back and forth, anticipate problems before they arise, and then find a solution for both the principle under contract and the surety guaranteeing the contract that makes sense.

Presentation is 90% of the qualifying process for contract bonds.

Many of our agents will have our account managers present their client’s account to a surety even when the agent represents the same surety. This is because of the quality of presentation we create and lets your company or client be presented in the best possible light, while building a lasting surety partnership based on trust.


We can help you secure your bonding needs now and in the future

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