Contract Surety Bonds
The bonds given by a surety in conjunction with construction projects are generally bid bonds, performance bonds, and labor and material payment bonds. They can be separate instruments or combined into one or two instruments.
A bid bond is provided as the basic instrument of pre-qualification. Pre-qualification in this context means that the surety has investigated the contractor sufficiently, and is convinced that the contractor has the experience, financial strength, and the organization to successfully complete the scope of work. The bid bond states that the contractor will enter into a contract if one is offered, and that he will furnish the performance and payment bonds required in support of the contract.
The performance bond states that the principal will accomplish the project in accordance with the contract plans and specifications. If he or she fails, the owner has a right of action against the surety to secure the completion of the project.
The payment bond states that suppliers of labor and materials on the project will be paid subject to restrictions and limitations imposed by statute or the contract.
