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Contract Surety Bonds

What is a Contract Bond?

A contract bond is a type of performance surety bond that provides a guarantee that all obligations outlined by a contract will be met. Contract bonds are used in many industries to help secure completion of a contracted project. There are many types of contract surety bonds, some of the most common being:

  • Bid bonds - Are sometimes required by project developers to ensure contractors are placing fiscally feasible bids and are able to obtain the required bonding if awarded the contract.
  • Construction bonds - Used in the construction industry to guarantee that contract terms will be fulfilled.
  • Payment bonds - Provide a guarantee that subcontractors will be paid for work completed on a project.
  • Performance bonds - Are used to ensure that a project will be completed in accordance to the terms outlined by the contract.
  • Subdivision bonds - Are often required when a contractor works on a land subdivision project, they ensure that all public works are completed to the necessary standard.
  • Warranty/Maintenance bonds - Provide a guarantee that completed works will maintain a defined quality standard for a set period of time.

Contract Bonds Explained

Who's involved in a Contract Bond?

Contract surety bonds involve three key parties:

  1. The principal: the business or contractor who is required to purchase the contract bond.
  2. The obligee: the person or entity that requires the principal to purchase the bond.
  3. The surety: the bonding company that underwrites the surety bond.

Who needs a Contract Surety Bond?

Contract bonds are common in the construction industry. They are often required by businesses and government agencies that need construction work completed. If you're bidding on or undertaking a project you may be required to get a contract surety bond prior to beginning the project.

It's also common for general contractors to require subcontractors to be bonded when hired to complete work on a project. In these instances, the general contractor is the obligee while the subcontractor is the principal.

Why are Contract Bonds required?

Some project developers may require you to have a contract surety bond to work on a project or take part in project bidding process. This requirement helps to protect them financially as a surety bond ensures that they get their project completed to the defined contract terms. If the contractor fails to complete the work the bond underwriter (surety) will provide financial compensation or take the necessary steps to get the project back on track.

How much do Contract Bonds Cost?

There are a number of factors that affect the cost of a contract bond. Some of the main factors are the amount being covered by the bond, the credit history of the business taking out the bond, the project contract terms, and the businesses resume. The bond premium will also depend on the type of contract bond needed. The average cost ranges between 1% and 15% of the bond amount.

Get the Contract Bond you need

The application process for surety bonds can seem confusing, but Viking Bond Service is here to help make the process quick and easy. Our friendly and efficient team helps make us the premier contract bond agency in the US. Call us today to get started.

Request a Surety Bond Quote:

  • Call us at 1-888-278-7389.
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