How Bid, Payment and Performance Bonds Work Together

In order to bid for and then perform a construction project, you will likely need three bonds: a bid bond, a performance bond, and a payment bond. These three contract bonds work hand in hand to provide security for several parties involved in construction contracts.


Viking Bonds: How Bid, Payment and Performance Bonds Work Together

For each bond, there are three parties involved.


The principal is the contractor who secures the bond to ensure their reliability.


The obligee requires the bond from the principal, and benefits from the bond in the case of a breach of contract.
The surety underwrites the bond and issues it.


For all three constructions bonds, the principal is the contractor, and the surety provides the bond. In the case of bid bonds and performance bonds, the obligee who benefits from the bond is the developer or project owner who hires the contractor. For payment bonds, the obligees are any subcontractors, laborers, and suppliers that the contractor (principal) will hire to complete the job.


How the three bonds work together:


First, in order to bid for a project, you need a bid bond. A bid bond certifies that if you are awarded the project you will perform the job, and guarantees that you will secure a performance bond in order to complete the construction. Because a bid bond certifies that you will get a performance bond, the application is very similar to that of a performance bond.


Once your construction bid has been selected you will need both a performance bond and a payment bond, which are often provided together in a single package.


The performance bond certifies to the developer who hires you that you will complete the project. It offers protection to them so that in the event that you are unable to complete the job, they can make a claim on the bond to hire another contractor to finish construction. Then you would be liable to reimburse the surety for any funds claimed against the bond.


The payment bond protects your subcontractors, suppliers, and laborers, and ensures that they are all paid properly. In the event that they are not paid, they can make a claim against the payment bond to receive money owed to them, and then you would need to reimburse the surety for any funds taken in the claim against the bond.


To sum up, you must be bonded from the moment you bid on a construction project, starting with a bid bond to protect your bid, and then following that up with performance and payment bonds to certify your work until the job is done.


For more information about bid bonds, performance bonds, and payment bonds, contact us at Viking Bonds today to speak to one of our knowledgeable and friendly contract bond agents.


You can call us at 1-888-278-7389, or complete the contact form on this page, and one of our agents will contact you.