November 25, 2020

Construction Bond & Different Categories of the Bond

2 min read

A client prefers to work with the builder having construction surety bonds rather than the one not in possession of the bond. Construction bond ensures the party that the constructor is obliged to do the work he has been assigned to. It provides a form of insurance to the investor. The bond covers the builder and the client from the beginning state till the completion the project.

Sub- categories of Construction Bonds –

Bid Bonds– According to Wikipedia “The bid bond assures and guarantees that should the bidder be successful, the bidder will execute the contract and provide the required surety bonds. A Bid Bond of amount not above 10% of the contract order total amount is deposited when a contractor, or the “supplier”, is bidding on a tendered contract.Sometimes, there is a number of construction companies or individual constructor, bidding on the same project. It is upon the client or the authority to choose the bidder among the list of the contractors after considering the reliability and the work history of the builders. This bond is usually backed up by a performance bond.56a069a48eecb.image

Performance Bond – It is a surety bond issued by an insurance or surety company to ensure the satisfactory and successful completion of the project by the assigned contractor. This bond is provided after considering the contractor’s track record of projects completed hitherto and considering the financial security or risk associated with the project and the builder. It is a legal agreement that provides a guarantee to the client that the assigned contractor will deliver the quality service that he has placed a bid on within the deadline.

Maintenance Bond – It is a maintenance bond between the contractor and the project owner. In future if the delivered service is defective and the building needs maintenance in case of defection then it will be borne by the contractor. Or there may be a cost ratio between the two parties against the expenses incurred for building repairs depending upon the agreement. It provides an assurance to the client that his service provider is able to maintain the building if any defect of service arises in the future.

Labor & Material Payment Bonds – It provides the surety regarding the payments associated with the construction projects. It is clearly mentioned in the bond that the all expenses regarding the building materials & labor or machinery cost will be borne by the contractor, not by the client or the principal.

A combination of above sub-categories is known as Construction Bond or Construction Surety Bond.