CONTRACT BONDS
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Approved Casualty & Surety’s team of surety experts have years of experience working with contractors and subcontractors. We understand all aspects of the construction business such as contract terms, financing, succession planning, and any foreseeable owner and industry issues. When our clients need a consistent surety program, we have what it takes to make it happen.
Contract Bonds are types of surety bonds that protect against disruptions or financial loss due to a contractor’s failure to complete a project or failure to meet contract specifications. In short, Contract Bonds ensure a project is completed according to the contract.
TYPES OF CONTRACT BONDS
A bid bond is required at the bid stage of a project. Although bid bond amounts vary, typically, the bid bond is 10 percent of the tendered amount.
Bid bonds are enforced when a contractor does not fulfill its obligations. The owner (obligee) will claim on the bid bond for the difference between the contractor’s bid and the next closest bid.
The surety company, in turn, will seek compensation from the contractor.
A performance bond is the primary form of construction surety bond which may be required in support of any type of contract. The majority of performance bonds are issued on behalf of contractors in support of contracts they wish to enter into with various owners. Various large commercial companies and financial institutions may also require performance bonds.
While contracts requiring bonding are most commonly related to construction projects, performance bonds are frequently required in support of contracts for the supply of materials, services, labour and products of many kinds.
Performance bonds are most commonly issued in Canada and the USA by insurance companies who are specifically licensed for this purpose (known as surety companies or sureties)
This is a form of contract surety bond that is often required to accompany a performance bond.
The labour and material payment bond (also known as a payment bond) guarantees your client’s customer (the obligee) that your client (the principal or contractor) will pay all amounts due to their subs and suppliers with respect to the contract in question. It should be noted that any payment by the surety creates an obligation by the principal to reimburse the surety for all expenditures.
A maintenance bond is a type of surety bond used in construction projects which guarantees maintenance after the work is complete, according to the contract. Maintenance bonds are typically used in large-scale projects, where it is important to ensure that the contractor continues to properly perform their duties under the contract, even after the project is completed and the principal has accepted the work. Maintenance bonds are important because they provide assurance that the contractor will properly maintain the work done on the project for the duration of the bond.
TYPES OF CONTRACT BONDS
BID BONDS
A bid bond is typically required in the amount of 5 to 20 percent of the contract bid, most commonly 10 percent.
In the event the contractor does not fulfill its obligations, they must compensate the owner (Obligee) for the difference between their bid and the next closest bid. In the event the contractor does not compensate the owner, the bonding company must pay out the difference under the bid bond. The bonding company, in turn, will seek compensation from the contractor.
PERFORMANCE BONDS
A performance bond is the primary form of construction surety bond which may be required in support of any type of contract. The majority of performance bonds are issued on behalf of contractors in support of contracts they wish to enter into with various owners. Various large commercial companies and financial institutions may also require performance bonds.
While contracts requiring bonding are most commonly related to construction projects, performance bonds are frequently required in support of contracts for the supply of materials, services, labour and products of many kinds.
Performance bonds are most commonly issued in Canada and the USA by insurance companies who are specifically licensed for this purpose (known as surety companies or sureties)
PAYMENT Bonds
This is a form of contract surety bond that is often required to accompany a performance bond.
The labour and material payment bond (also known as a payment bond) guarantees your client’s customer (the obligee) that your client (the principal or contractor) will pay all amounts due to their subs and suppliers with respect to the contract in question. It should be noted that any payment by the surety creates an obligation by the principal to reimburse the surety for all expenditures.
MAINTENANCE BONDS
A maintenance bond is a type of surety bond used in construction projects which guarantees maintenance after the work is complete, according to the contract. Maintenance bonds are typically used in large-scale projects, where it is important to ensure that the contractor continues to properly perform their duties under the contract, even after the project is completed and the principal has accepted the work. Maintenance bonds are important because they provide assurance that the contractor will properly maintain the work done on the project for the duration of the bond.
ASSOCIATIONS & RELATIONSHIPS
More about Contract Bonds
Contract bonds are a type of surety bond that helps protect both parties in a contractual agreement. Contract bonds are typically used in large-scale construction projects, where it is important to ensure that the contractor fulfills their obligations and that the principal is financially protected. Contract bonds help to guarantee payment to subcontractors and suppliers, protect the principal from financial losses due to a contractor’s inability to complete the project, and ensure that ethical standards are maintained.
Overall, contract bonds provide an important layer of protection in any contract, ensuring that all parties are protected and that the terms of the agreement are followed.
Contract bonds are an essential part of any successful construction project and business, helping to guarantee payment and protect against potential losses.
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