A construction surety bond is a contract that governs the legal relationship between a principal (contractor), an oblige, and a surety, with the surety ensuring that the principal in the bond will carry out the responsibilities specified in the bond. When these requirements are satisfied, the bond is declared no longer valid. Construction bonds, on the other hand, remain in full effect if the obligations are not satisfied.

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If the principal fails to satisfy the bond’s obligations, either the principal or the surety will be held liable. This is a “joint and several” duty, which implies that either the principal or the surety, or both, might be sued on the bond and held accountable for the whole liability. The face value of a bond is referred to as its total penalty cost.

In essence, construction surety bonds or contract bonds typically involve three parties. They are as follows:

The Principal

The person or organization obligated to issue the surety bond is known as the principal. In a building project, the party must achieve the conditions for bond purchase and payment established by the surety business underwriter. Some of the reasons why the principal obtains a surety bond are as follows:

  • Complete adherence to contract requirements, as shown by the contract performance bond
  • Keeping abreast of industry norms and regulations
  • Upholding proper ethical standards in commercial activity

Obligee Subcontractor Surety Bond


The obligee is the one who asks the principal for the subcontractor performance bonds. Surety bonds are essential for public building projects since they are often funded by taxpayers. Government agencies need a surety bond to guarantee that money is used properly. Other obligees might include the proprietors of private building projects, regulatory bodies, or a court of law.

The Surety

The surety is an insurance firm that protects the obligee from any construction risks and that will specialize in subcontractor default insurance. The surety corporation guarantees the obligee that the principal will uphold all terms of the contract, including quality, legal, and ethical standards. When a customer files a claim against a surety bond, the firm analyzes the claim’s legitimacy, and if it is deemed genuine, the claimant gets a payment of up to a specific amount.

Types of Construction Surety Bonds

Performance Bonds

A performance bond is a contract that ensures the obligee that the principal will complete the contract in accordance with the agreed-upon conditions, such as price and timing. If the principal fails to fulfill their obligations, the obligee may call on the surety to do so.

Payment Bonds

A payment bond assures the obligee that all subcontractors and suppliers, also known as beneficiaries, which were utilized to fulfill the bond’s obligation, would be completely reimbursed for the services and materials given by the principal. If the beneficiaries are not reimbursed, both the obligee and the beneficiaries may sue under the bond.

Bid Bonds

A bid bond assures the obligee that the principal will fulfill the bid and agree to the contract conditions if the bid is successful. If the principal fails to meet the bond requirements, both the principal and the surety may be held liable for any extra expenses connected with reletting the contract. When a performance or payment bond is needed for federal projects, a bid guarantee is necessary.

Construction, like other enterprises, entails a great deal of risk. Material shortages, economic uncertainty, labor-management difficulties, tool and equipment malfunctions, and other concerns plague the sector in particular. When these dangers overwhelm the contractors, abandoning or halting the project becomes the only option.

So, as the owner of a construction project, how can you ensure that the contractors will finish the task regardless of the stumbling stones along the way? The answer is to get completion bonds for construction from a contractors bond company.

A surety bond essentially means that the risk of the cost is transferred elsewhere, and is on the assumption that contractors will complete the construction project on time and within the budget specified in the contract.

Does My Construction Company Need To Be Bonded?

Bonded Construction CompanyThe answer is yes. Payment and performance bonds for construction are not only for government building projects. Here’s how a surety bond could help you as a private construction firm owner:

In the event that the contractor fails, the surety firm assumes responsibility for fulfilling the contract.

The project contractor must go through an extensive pre-qualification procedure to ensure that they can satisfy the contract’s responsibilities and that the project will be finished.

The surety bond underwriter may provide the contractor with free and knowledge-based technical, financial, and managerial insights.

Surety bonds provide peace of mind since subcontractors cannot file mechanic’s liens against you for unpaid materials or services. Instead, underpaid suppliers or workers may direct their claims to the bond, removing the risk of financial loss from you.

A surety bond as well as labor and material bonds also protect against financial loss if the contractor mishandles or wastes project cash.

The assurance firm offers a forum for project owners to lodge concerns or grievances and get support. This is why construction performance bonds are so crucial.

Most surety providers ask contractors to provide a corporate or personal indemnity. This considerably boosts a contractor’s chances of finishing a bonded job versus a non-bonded one.

When searching for a contractor, a construction project owner might reduce construction expenses by using competitive bidding.

How Long Is A Surety Bond Good For?

One of the most common inquiries we get from our customers is, “Do surety bonds expire?” and the reality is that yes, most bonds expire, but the good news is that you can renew them whenever you reach the bond term limit, which ranges from one to three years. You can always renew the bond until your building project is completed, depending on its capacity.

A surety bond is the only proven method of safeguarding construction project owners against contractor ineptitude. If you want to reduce the risks associated with building projects, obtaining a surety bond is the best method to do it.

We provide tailored and reasonable financial protection for your construction projects, allowing you to concentrate on growing your company. Contact us today and allow us to assist you as the best bond companies for contractors by securing the future of your upcoming construction projects, whatever they may be.