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Construction Bonds

What is a Construction Bond?

A Construction Performance Bond is a general type of contract performance surety bond that guarantees the fulfillment of a contract. The term "Construction Bond" is interchangeable with "Contract Bond."

There are three primary types of Construction Bonds:

1. A Bid Bond ensures that a contractor bidding on a project will enter into a contract with the developer if their bid is chosen.
2. A Performance Bond guarantees that the contractor will complete the contracted project to a satisfactory standard.
3. A Payment Bond guarantees payment to all sub-contractors, laborers, and suppliers involved in a contracted project.

Each of these Construction Surety Bonds involves three parties.

• The principal is the contractor purchasing the bond to guarantee either their work (Bid Bonds, Performance Bonds), or their payment to subcontractors (Payment Bonds).
• The obligee is the beneficiary party who requires the bond.
• The surety underwrites and issues the surety bond.

There are other Construction Bonds as well, including Subdivision Bonds.

When Do I Need a Construction Bond?

Construction Bonds are required to bid on and perform nearly all construction projects, including all federally funded projects valued at $100,000 or more. Bid Bonds are required in order to submit a bid for a project, and Performance Bonds and Payment Bonds are generally required before construction can begin.

Why Do I Need a Construction Bond?

It would be difficult or impossible to secure most construction jobs without Construction Bonds. Bid Bonds are required to submit for many projects while Performance and Payment Bonds are mandated on all federally funded projects of $100,00 and above, and required on most private projects as well.

Benefits for the Obligees:

• Bid Bonds: In the event that a contractor backs out form a bid, the developer can make a claim on a Bid Bond for the difference between the awarded bid and the next lowest bid to recoup their losses. Bid Bonds ensure that bids are priced correctly and serious.
• Performance Bonds: In the event that the contractor does not complete the project satisfactorily, the developer can make a claim against the Performance Bond to hire a contractor to finish the job.
• Payment Bonds: In the event that the contractor refuses to or is unable to pay their subcontractors, suppliers, and laborers, they can make a claim against the Payment Bond to receive payment.

How Much Are Construction Bonds Written for?

Bid Bonds and Performance Bonds are written for the value of the contract. Payment Bonds are written for the expected costs of subcontractors, laborers, and suppliers.

How Much Do Construction Bonds Cost?

Construction Bond rates vary for each contract. They are calculated as a percentage of the full amount, usually between 1% and 5%. Viking Bond Service, Inc. makes it a priority to offer the program best suited for the Contractor at the lowest rate possible.

What Do You Need to Secure a Construction Bond?

Construction Bond Requirements vary based on the job, but during your application process you can expect to provide:

• The bid amount
• The bid date
• Your company history
• Any bonding history that you have
• Your credit score

For bids more than $250,000, you will also need to provide more detailed financial information. To find out the requirements for your Construction Surety Bond, contact Viking's Construction Surety Bond department today for a free consultation. We can provide you with expert level knowledge to answer any questions you may have, and Viking can provide any type of Contract Surety Bond in any amount.

Get Your Construction Bond Fast

Depending on your bonding needs, you can get the Construction Bond that you want in as little as a few business days. At Viking, we can help you expedite your bonding process by guiding you through the application process, and providing timely underwriting.