Widely used by the construction industry but also well used within many service groups as well as supply, manufacturing and technology industries among others. These types of bonds guarantee the performance and or payment of obligations under contract.
There are generally 3 parts to the contract surety process. The bid bond, performance bond and payment bond are contract bond. The three parts are used together but are all completely different. A bid bond is issued as part of a bidding process by the surety to the contract "owner" or 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 and payment bonds. 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 payment and performance bonds. These are two separate bonds guaranteeing two separate issues, 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 Principle's sub contractors 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.
It is imperative that when dealing with any contract issue that you have the right group representing you or your client to the surety company. A good bond producer should be able to see issues up front without a lot of back and forth. A good producer should also be able to anticipate problems before they arise and find a solution for the principle under contract and the surety guaranteeing the contract.
Presentation is 50% of the qualifying process. Many of our agents will have SPS present their clients account even when the agent represents the same surety, simply because of the quality of presentation SPS puts together. This allows your company or client to be presented in the best possible light.
Types of Contract Bonds
- Bid Bond
- Maintenance Bond
- Payment Bond
- Performance Bond
- Site Improvement Bond
- Subdivision Bond
- Supply Bond