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Types of Bonds needed for Construction Projects

The more contractors understand surety bonds, the more equipped they will be to purchase or renew the specific contractor bonds required for construction projects. The Surety Place is a national surety agency that specializes in all types of bonds needed for construction projects. Whether you are just starting out or well-versed in the construction industry requirements, our team can help you get the right construction bonds for your project, no matter the size.

Construction Bonds by State

To become a licensed contractor, you must first get a contractor license bond from your state, county, or municipality. As a result, expenses and criteria differ depending on the location of construction. Before obtaining a any construction bonds, a contractor must obtain a contractor license bond. If you have questions about requirements for your specific state, contact our team today.

What is a Contract Bond?

A contract bond is a type of construction surety bond that ensures that a contract is carried out according to the criteria agreed upon by the project’s contractor and the owner. The project owner, the obligee, can bring a claim against the bond to recover financial damages or a stipulated default provision if the contracted party, the principal, fails to perform its obligations according to the agreed-upon conditions.

Contract bonds are often required in the construction sector, but they are also required in a wide range of commercial contracts in other industries, including service, supply, technological development, and manufacturing. All contract bonds, on the other hand, guarantee the execution and/or payment of the contract’s obligations.

Contract bonds are generally needed before the start of any public project worth more than $100,000 since there is a lot on the line, and the obligee wants to ensure that if any part of the contract is not met, recompense for damages and loss would be paid.

Who is Protected by a Contract Bond?

Contract Bonds are frequently misunderstood in that they prevent the contractor from being held responsible for damages. Although surety bonds are typically provided by insurance companies, they are not the same as regular insurance policies.

This type of surety bond really protects the general public by ensuring that construction experts will follow the bond’s legal requirements and fulfill every aspect of the construction project according to the original contract. Construction professionals who obtain contractor license bonds commit to following specific laws, safeguarding government agencies and customers from financial damage.

Reduce the Cost of your Contract Bond

Applicants with excellent credit are often accepted for as low as 1% of the entire bond amount. A $10,000 contract bond, for example, would cost the applicant only $100 over the course of the bond’s duration. The Surety Place may frequently gain approval at a cost of 2-5 percent of the bond amount, even if the applicant has poor credit.

Regardless of your credit, The Surety Place works with many of the industry’s major suppliers, which means we’ll shop around until we get you the best deal on a contractor bond. Apply now to see how much money you can save with The Surety Place!

What are Contract Bond Requirements?

Contract bonds can include, but are not limited to, the following:

Contracto bonds for construction projects typically include a handful of different types of contract bonds including but not limited to: bid bonds, performance bonds, payment bonds, maintenance bonds, improvement bonds, subdivision bonds. These construction bonds are required for different reasons but typically all work together to ensure a construction project is completed in full, following all regulations and laws according to the state in which the project is taking place.

Contract Bond vs Construction Bond

You might be unsure what the difference is between a contract bond and a construction bond, but there really isn’t one. Construction bonds are a form of contract bond and vice versa. These surety bonds have the same objective and guarantees to protect the project owner and general public.

Investors and project owners utilize contract and construction bonds to safeguard themselves and their assets from fraudulent work, damage, financial loss, or other disturbances throughout the building process.

Types of Contract Bonds

Bid Bond– When a contractor is attempting to win a bid for a big construction project, a bid bond falls under the contract bond umbrella and can be viewed as a pre-qualifier. This is a good-faith guarantee that if the bidder is chosen, the contract will be completed according to the bid terms, including the posting of the performance bond. Bid bonds are generally between 5% and 10% of the total contract value. Most contracts allow at least 10 days for the final bond to be supplied after the bid bond has been accepted and the contract has been awarded.

Maintenance Bond – A maintenance bond is a form of contract bond that guarantees that contractors will finish work according to the agreement’s specifications while adhering to all state requirements and providing work that isn’t substandard or inadequate. Any construction project requires a maintenance bond. It stipulates that the contractor completes all work or repairs required on the project within a certain time frame, even if the project has been finished. The maintenance bond will specify the time in which a contractor is legally obligated to remedy any faults on the project, and if the contractor fails to do so, the project owner can make a claim against the maintenance bond.

Payment Bond – A payment bond is a surety bond provided to a contractor for a project to assure that subcontractors, workers, and material suppliers get paid in a timely way for the job they accomplish. Unlike a performance bond, which assures satisfaction once a project is completed, a payment bond ensures that the proper individuals get paid for their labor regardless of the project’s outcome. After a bid is won, a payment bond is usually provided along with a performance bond, and the surety will frequently grant all three at the same time. A payment bond is a contract or agreement between the person who requests the bond (usually subcontractors, material suppliers, or laborers) and the principal (usually a contractor) who holds the bond, acknowledging that if payment is not made in a timely manner, the principal (usually a contractor) who holds the bond will be held liable.

Performance Bond – Another sort of contract bond is a performance bond, which is a surety bond provided to a contractor before the commencement of a construction project to ensure that the contractor will execute the project’s responsibilities to the satisfaction of the project’s owner, as agreed upon in the initial contract. The performance bond not only protects the obligee, but also serves as proof for future bond demands. The obligee, generally the owner or investors, can submit a claim against the performance to the surety if the principal fails to comply with the agreed-upon criteria. The principal is then responsible for repaying any money paid out by the surety on behalf of the claim. To avoid losing licenses and business in the future, all claims should be sorted out and paid as quickly as feasible.

Contractor License Bond – A contractor license bond serves as a commitment to ensure the safety of your clients and is required to get a contractor license. A contractor license bond is advantageous to both you and your clients, and it should be secured whenever a project bid is accepted. When you get a contractor license bond, you promise to obey all state rules and regulations. This is viewed as another kind of assurance for any project owner, letting them know that the contractor they’ve chosen is trustworthy and won’t do anything illegal or substandard.

Improvement Bond or Subdivision Bond – An improvement bond, also known as a subdivision bond or a contract bond, is required of developers or house builders and is used to ensure the completion of obligatory upgrades to public structures or entities that the local community uses on a regular basis. These bonds safeguard a particular city, county, or state. The principle of a public construction project promises to execute obligatory upgrades to public entities as part of an improvement bond since such improvements are for the better welfare of the community. Maintenance of roadways, sidewalks, drainage systems, gutters, sewers, and public buildings are examples of public construction projects that may need an improvement bond.

Supply Bond – A supply bond is a form of contract bond that ensures that a supplier will deliver all materials, furniture, and supplies specified in the first signed contract. If the supplier fails to meet the contract’s requirements, the project’s owner can file a claim against the bond to cover any financial losses. If a claim is lodged against the supply bond, the surety will cover the cost of the supplies in the event of a loss. Supply bonds are needed by law or by the project owner for public construction projects, and having a claim on your supply bond can be disastrous for your firm.

Get Your Construction Bond Quickly

This is the simple part; simply select The Surety Place as your bonding company. Contract bonds are essential for every construction company in one way or another, and getting a decent rate is critical. Our underwriters have a combined 50 years of experrience writing contract bonds and all other types of construction bonds, making the process as simple as possible for you.

Applicants must accomplish more than simply securing a general contract bond to become licensed contractors. That’s why we take pleasure in making sure you have the right construction bonds as fast as possible—quotes are usually delivered within one business day. Some bonds can also be acquired online and delivered electronically the same day if purchased through our secure bonding system.

Our surety specialists may be reached via the following means by contractors who are ready to get bonded in order to get a general contractor’s license or who need a specific construction bond in order to start working on a project:

Give our experts a call at 866.430.3322
Email us at

Or apply online today

We provide access, relationships, and specialty programs with several “A” rated sureties around the country as one of the industry’s only real experts. The Surety Place is available to assist you with all of your custom bonding needs without the need for appointments. Our industry experience and expertise, along with our growing specialty programs, offer us a one-of-a-kind capacity to write your bonds when no one else can.

The Surety Place can serve as your bonding company throughout the duration of your firm’s existence. You and your company will never be disappointed if you place your trust in our team of professionals.

June 29th, 2021