Protect Your Business With Contractors and Bonds
Contractor Bonds (Surety Bonds)
How Do Contractors Bonds Work?
A contractor bond involves three parties:
- Principal (Contractor) – The contractor who purchases the bond and is responsible for fulfilling the contract.
- Obligee (Client/Project Owner) – The entity requiring the bond to protect against financial loss.
- Surety (Bond Provider) – The company that issues the bond and guarantees compensation if the contractor fails to meet obligations.
Types of Contractors Bonds:
- Bid Bond
- Ensures the contractor will honor their bid and sign the contract if awarded.
- Protects project owners from contractors who submit low bids but refuse to proceed.
- Performance Bond
- Guarantees that the contractor will complete the project according to contract terms.
- Protects clients from financial loss if the contractor defaults.
- Payment Bond
- Ensures subcontractors, suppliers, and laborers are paid for their work.
- Prevents liens from unpaid workers or suppliers.
- License & Permit Bond
- Required by local or state governments to ensure the contractor follows laws and regulations.
- Example: An electrical contractor needs a bond to obtain a business license.
- Maintenance (Warranty) Bond
- Guarantees the contractor will fix defects or issues after project completion for a specified period.
- Supply Bond
- Ensures the contractor will provide necessary materials and supplies as agreed.
Why Are Contractor Bonds Important?
✔ Many government and commercial projects require bonds before awarding contracts.
✔ Builds trust with clients by showing financial responsibility.
✔ Protects clients and subcontractors from contractor default or non-payment.
Who Needs Contractor Bonds?
- General contractors
- Specialty trade contractors (HVAC, plumbing, electrical, roofing)
- Construction companies bidding on public or commercial projects
Would you like help finding the right bond requirements for your contracting business?