Types of Bonds

BONDS include the bid bond, the payment bond, and the performance bond. Bonds that are issued by sureties are similar to insurance policies.

Bid bonds are provided by the contractor at the time of the bid. The bid bond guarantees that the contractor-should he or she be the low bidder - will sign the contract and provide the payment and performance bonds.

The payment and performance bonds are provided when the contract for the work is signed. The payment bond guarantees that the vendors, subcontractors, and labor will be paid for the work they perform on the project. In the event that the vendors, subcontractors, and labor are not paid on the project, the surety will step in and make the necessary payments.

The performance bond guarantees that the contractor will complete the construction project. In the event that the contractor fails to complete the project, the surety will step in and complete the project. Providing payment and performance bonds can increase the costs of the project by 1% to 2%.