Surety and Construction Bonds Explained

Bid, performance, and payment bonds

A bid bond supports the bidder's promise to enter the contract and furnish required final bonds. A performance bond supports completion obligations. A payment bond supports payment obligations to eligible subcontractors and suppliers. The actual rights and duties come from the bond and contract wording.

Surety is not insurance

Insurance generally transfers specified risk to an insurer. Surety supports the principal's obligation to the obligee and is underwritten as credit. If a surety incurs a valid loss or expense, the indemnity agreement generally gives it reimbursement rights against the principal and other indemnitors.

How contractors qualify

Sureties evaluate character, capacity, and capital using contractor experience, financial statements, working capital, bank support, work-in-progress, backlog, project size, contract terms, and prior performance. Qualification and bond availability are not guaranteed.

Bond costs and application inputs

Rates depend on bond type and size, financial strength, experience, program capacity, contract terms, and the surety's underwriting. Prepare the bond form, obligee, amount, deadline, contract, scope, schedule, financial statements, work-in-progress schedule, and ownership information for an actual indication.

Sources

• Surety Bond Guarantee Program — U.S. Small Business Administration
• FAR Part 28 — Bonds and Insurance — U.S. General Services Administration