A Bid Bond provides financial assurance to the owner. This type of bond states that the contractor possesses sufficient financial credentials to accept the job and will enter into a contract with the owner for the contractor’s bid. The contractor also commits to providing a performance and payment bond when awarded the project.
A Performance Bond ensures the contractor will perform its contractual duties in accordance with the contract. If the contractor fails to complete the project according to the contract, the owner can make a claim. Frequently, performance bonds work in conjuction with payment bonds.
A Payment Bond, also known as a Labor and Material Bond, guarantees that the contractor will pay all financial obligations (material, labor, subcontract, etc.) relating to the contract. If the contractor fails to pay subcontractors and suppliers for their work, the payment bond amount may be used as reimbursement to these parties.
A Maintenance Bond provides coverage against defects or faulty workmanship for a specified time after a project’s completion. If a project is deemed defective during this time period, the maintenance bond amount may be used to cover necessary repairs.
A Supply Bond guarantees the contractor will provide certain supplies, equipment or materials to the owner. If the contractor fails to provide the agreed upon items, the supply bond amount may be used to reimburse the owner for any resulting loss.
Small Business Administrations Guaranteed Bonds
The SBA guarantees surety bonds for certain surety companies, which allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties.