Construction Bond
The construction industry in the US employs more than 7 million people and produces more than $1 trillion worth of structure every year according to data from the Associated General Contractors of America. Those figures emphasize the importance of this industry - it literally builds the country. And because it's so important, construction companies often need to obtain specialized surety 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." Construction Bonds help clients and governing organizations have confidence in a contractor's ability to get the job done.
There are three primary types of Construction Bonds:
- A Bid Bond ensures that a contractor bidding on a project will enter into a contract with the developer if their bid is chosen.
- A Performance Bond guarantees that the contractor will complete the contracted project to a satisfactory standard.
- 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. Mistakes and misunderstandings only make the bonding process harder, so if you have any questions about types of surety bonds in construction, it really helps to connect with a team of experts. They can give you the honest, in-depth information you need to ensure your bonding process goes smoothly.
How Do Construction Bonds Work?
As with all types of surety bonds, construction bonds provide certain protections and assurances to project owners and managers that help to ensure the successful completion of the job. Contractors secure construction bonds to guarantee their work when bidding on projects. These bonds are requested by the obligee, which is typically a government entity. In the event of a dispute over payment or performance, a surety company steps in, determines the validity of the dispute, and awards compensation when appropriate or takes steps to get the project back on track. The surety then goes on to collect from the principal, or the contractor who was bonded.
Construction bond claims are damaging to the bonded party's business. For one, the surety will seek to collect the amount expended settling the claim from the principal. Having to spend the funds repaying a surety due to a settled claim can be a financial hit to a contractor. Also, claims, especially those that have caused the surety to take a loss, can render a contractor unbondable, meaning the chances of getting any contracts that require bonding in the future become slim. It's in the principal's financial interest to avoid actions that could lead to claims, and to settle with the obligee rather than letting a situation regress to the point of a claim.
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. Performance Bonds, Construction Bonds, and Payment Bonds can all be handled by a capable surety bond provider such as Viking Bond Service. Contact us as soon as you know you need a bond. There's no incentive to delay the process any longer than necessary.
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 $100,000 and above, and are required on most private projects as well. Whether public or private, construction bonds provide peace-of-mind to project owners—they can have confidence that the job is going to be done right. In that context, a performance bond in construction projects actually helps the principal even if that person must pay for the surety bond and pay for any claims. Without the trust a surety bond builds between a principal and an obligee, it would be much more difficult for projects to proceed, leading to less construction overall.
Benefits for the Obligees:
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. The value of a bond designates how much the surety company issuing the bond is willing to pay out to settle claims. For example, a performance bond in construction valued at $250,000 means the surety would pay up to a quarter million dollars to settle claims.
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?
To start the construction bond process, simply get in touch with one of our surety bond experts at 1-888-278-7389. We'll help find the surety solution that's right for you, step by step. If you have questions along the way, don't hesitate to reach out—it's our commitment to you to provide a superior surety bond experience.
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
A credit check is also used in the quote process. While higher credit scores usually translate to better rates, we also offer surety bonds for those with less-than-perfect credit.
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 the Viking Bond Service 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.
How do You Get a Construction Bond?
Depending on your bonding needs, you can get the Construction Bond that you want in as little as a few business days. We can help you expedite your bonding process by guiding you through the application process and providing timely underwriting. Viking Bond Service is determined to provide surety solutions for construction contractors of all sizes, with fast turnaround times and the lowest premium rates possible. No matter where your project is located, we have experience providing construction bonds to contractors all around the country.
Work with a surety that has the experience and the expertise to handle your surety needs for the long haul. Viking Bond Service is committed to being your superior surety bond partner.
Request a Construction Performance Bond Quote:
Call us at 1-888-278-7389 or complete the contact form on the page to get more information. Or request a quote today by completing this easy form.
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