Construction Bond Requirements: Key Points
Construction bonds are a type of surety bond used to protect project owners and ensure contractors fulfill their obligations. S|CPA Group – A Member of the S|CPA Network provides construction bond requirements in Austin, Dallas, Fort Worth, San Antonio, Plano and surrounding areas.
They act as a financial guarantee that work will be completed as agreed, or that compensation will be available if the contractor defaults.
- Common Types of Construction Bonds
Bid Bonds – Guarantee that a contractor who wins a bid will enter into the contract at the bid price and provide required performance and payment bonds.
Performance Bonds – Ensure the contractor completes the project according to the contract’s terms, plans, and specifications.
Payment Bonds – Guarantee that subcontractors, laborers, and suppliers are paid, protecting against liens.
- When Bonds Are Required
Many public projects mandate bonds under laws like the U.S. Miller Act or state “Little Miller Acts.”
Private owners may also require bonds for added security.
Requirements typically depend on project size, type, and jurisdiction.
- Bond Amounts
The required bond amount is often a percentage of the contract value—commonly 100% for performance and payment bonds, and 5–10% for bid bonds.
- How Contractors Qualify
Contractors must undergo a surety underwriting process that examines financial statements, experience, credit history, and capacity to complete the work. Approval indicates the surety trusts the contractor’s reliability.
- Legal and Practical Importance
Failure to obtain required bonds can disqualify bids or breach contract terms. For public jobs, it may also violate statutory obligations. Bonds reduce risk for owners, reassure investors, and protect the payment chain.
Bottom Line
Understanding bond requirements—and planning for their cost and qualification process—is essential for contractors seeking public or large private projects. Compliance ensures eligibility, protects relationships, and helps secure future work. If you need assistance, we’re just a phone call away.
