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What is a Construction Bond?

What is a Construction Bond?


Players in the building industry often ask, “What is a construction bond?”

They are the contract that construction project investors sign guaranteeing protection if unfortunate events lead to:

  1. Disruptions
  2. Inability to finish the project
  3. Failure to satisfy the project specifications
  4. The contractors companies inability to pay their debts.

Several unfortunate things can happen during the building process, so these bonds greatly help no matter the size of the project and whether you plan a government or private project.

We are NFP Surety.  The largest bonding company in the US.  Zurich and Western National are two of the major construction bonding carriers in the country, and we have excellent relationships with both of them. Contact us today for all your bonding needs, Nationwide!  Surety bonds are what we do!

What Are Construction Bonds

They are an agreement involving three parties:

  1. The principal party, who is the contractor or building firm.
  2. The surety, or the firm guaranteeing protection.
  3. An obligee, the party that requires bonding, or the eventual owner of the detailed project.

In these bonds, the obligee surety will offer a financial guarantee to the obligee that the builder will follow the terms of the bond.

Construction Bonding

You cannot win construction project contracts without a bond for the following reasons:

• The bond is the assurance that the bonded construction company will ethically and faithfully fulfill the business practices. If the architect or engineer fails to obey building sector rules, the injured party can file claims against bond.

• Construction bonding solutions guarantee that the builder shall follow the building project until its final stages or the surety will lose the bond.

What is a Construction Bond

Bonding in construction is a crucial feature in the all building sectors. If the party contracted to implement a road or housing project does not fulfill the duties and terms stipulated in a bond, the construction project developer will recover the financial losses by initiating a claim a bond.

Types of Bonds

A project developer may require different kinds of bonds during the job’s lifespan to ensure it’s completion at particular stages. Sureties are necessary before work begins on public, federal or national government-funded buildings.

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list of construction bonding types…

  • Bid bond definition: A builder will require a bid surety to guarantee the accuracy of the of the financial credentials in the bidding information, and the readiness to work on the project should the obligee accept to award the bid.
  • Payment bonds: Payment surety worth $100,000 or more to assure that the sub-contractors and laborers will get the due payments.
  • Construction Performance bonds: A bond worth at least $100,000 that commits to complete the job as the contract between the investor and the building company stipulates.
  • Supply bond: The guarantee to supply the quality materials specified in the contract.
  • Maintenance: A bond that commits to using high-quality materials and workmanship for a specific timeline. The claim to the bond can arise if the need for repairs come up before the sureties expires.
  • Subdivision bonds: The requirement for the contractors to renovate or build public subdivision structures, such as sidewalks, waste water systems, or pedestrian walkways. Bond can cater for the subdivisions if the contractor does not build the features.
  • Site improvement: The commitment to update the older structures in pre-existing projects.
  • Contractor license: Bonds the contractor must buy at the state, county, or city level before practicing.
  • Utility Bond Definition – we have a dedicated page that focuses on utility surety bonds.  Check it out.

Additional Construction Bonding Companies include Travelers Insurance, and they are a fantastic resource of knowledge.

Bond Violation

A breach of the surety agreement can occur if any party goes against the specified terms. The violation is the inability to perform or meet the agreement conditions. For example, a real estate developer may require earthquake prevention codes. If the builder fails to install the features, the developer will get the payments for the violation from the surety if the contractor cannot pay.  Contact Surety by NFP now, and let the professionals properly bond your construction project.  The application process only takes a few minutes, and couldn’t be any easier.  What does it mean to be bonded?  We’re gladly explain and help.

construction bonding

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NFP Surety has been working in the insurance industry since 2008.

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