General Contractor Surety Bond – A Detailed Insight

General Contractor Surety Bond – A Detailed Insight

What is a Contract Surety Bond?

A contract surety bond, more commonly called a surety bond, is defined as an agreement with three parties, the obligee, the principal, and the surety. This bond ensures that the contractor will complete the contractual terms set out in the construction contract as agreed upon. When a contractor does not fulfill these duties, the surety company becomes answerable for the project or makes suitable for any losses in money experienced by the obligee.

What are the Most Common Surety Bonds?

Several types of surety bonds are commonly used in the construction industry, and some of them have been mentioned below:

Bid Bonds
These bonds help to assure that the contractor will accept the contract as provided at the agreed bid price in the event they clinch the project. Bid bonds work to the advantage of the project owners since it helps them avoid contractors with low bids that are unlikely to be met, or bids which are not actual offers.

Performance Bonds
Request for performance bonds ensures that the contractor will complete agreed work outcomes and deliver the project as expected in terms of quality and timeline. In case the contractor is defaulted, the surety company comes in to complete the project and ensure its completion.

Payment Bonds
By posting a payment bond, the contractor guarantees payment to subcontractors, suppliers, and laborers who worked on the project. This bond safeguards these parties from non-payment and facilitates efficient financial transactions in the project.

Maintenance Bonds
Maintenance bonds ensure that the contractor is responsible for any defects found in the construction to a stipulated period upon completion of the building. In the case that there are defects or problems ailing this period, then the surety company shoulders the expenses of the repairs.

What is a Construction Guarantee Bond?

A construction guarantee bond is one that guarantees the project owner if the contractor defaults on his responsibilities. Nonetheless, construction guarantee bonds differ from performance bonds, where the contractor pays a premium to warrant the overall project completion. They assure particular parts of a construction project only or during certain stages of the project. These bonds provide protection and surety to the project owners for specific aspects of concern in the construction projects.

Why Are Bonds Used in Construction?

Risk Management
In construction projects, there are many types of risk factors that may be present, and these may include financial risks, operational risks, or legal risks among others. Bonds help to reduce these risks as they act as the financial guarantee for a contractor’s failure, violation of the provisions of the contractor and supplier agreement, or poor work. They act as contingency measures whereby in the case of any event that may have adverse consequences on the project, certain measures have already been put in place.

Financial Security
Through issuing bonds, project owners or investors can be relieved knowing that their monetary investment is protected. This product acts as security in the event that the contractor fails to complete the project or does so substandard; it affords cash to complete the project without burdening the project owner.

Legal and Regulatory Compliance
Many construction projects, whether public or privately contracted, need bonds to meet legislative and regulatory measures set in the contract. It will also be good to have bonding requirements to make sure that people are held responsible in case something goes wrong and to check the work for quality and compliance with acceptable practices.

Promoting Professionalism
The demand for bonds ensures that contractors act responsibly and meet or surpass expectations from clients and other stakeholders. Suppose the contractors submit their proposals to the client. In that case, they are more likely to work hard towards delivering projects according to stipulated contracts because they stand to lose their reputations and probably financial stability if they fail to do so. Bonds ensure commitment and responsibility to professionalism in constructed projects making the construction industry highly accountable to its various stakeholders.

Why Are Bonds Used in Construction?

Frequently Asked Questions

Q1. What does a 10% performance bond mean?
A 10% performance bond means that the bond’s coverage is equal to 10% of the contract value, making sure that the project will be completed.
Q2. How to make a surety bond?
A surety bond process requires you to have the necessary documentation and financial information, as well as pay the required premium based on the bond value.


If you are looking for more detailed insights on general contractor surety bond, you should connect with Can Do Surety Bond today and ask them to help you out with all your requirements.