What is a Contract Surety Bond?

A contract surety bond is a guarantee from a Surety to a project owner (called the “Obligee”) that a contractor (called the “Principal”) will meet the obligations of a contract. The most common types of contract surety bonds are bid bonds, performance bonds, and payment bonds.

Bid Bond – A bid bond guarantees that a bidder on a supply or construction contract, if awarded the bid, will enter into the contract within the time stipulated. Default on a bid bond typically results in liability for the difference between the amount of the principal’s bid and the bid of the next lower bidder who can qualify for the contract.

Performance Bond – A performance bond guarantees that a contractor will faithfully perform its duties under contract as prescribed by law.

Payment Bond – A payment bond, sometimes called a “labor and material bond,” guarantees the contractor will pay certain tiers of laborers, sub-contractors and suppliers for labor and materials supplied to the project.

Maintenance Bond – Maintenance bonds guarantee a contractor will provide upkeep, and remedy and maintenance issues that arise during the maintenance period, normally the first year of project completion. Maintenance bonds are also known as a “warranty bond.”

Supply Bond – A supply bond guarantees the supplier will furnish supplies or materials as required by contract. In the event of a default by the supplier, the Surety must indemnify the purchaser of the supplies against the loss.