Things to Know About Construction Surety Bonds
Construction surety bonds are an essential risk-management tool used on many public and private construction projects. They help protect project owners, subcontractors, and suppliers by ensuring that contractual obligations are met. S|CPA Group – A Member of the S|CPA Network offers construction surety bonds in San Antonio, Dallas, Austin, Fort Worth, Plano and surrounding areas.
- A construction surety bond is a three-party agreement involving the principal (the contractor), the obligee (the project owner), and the surety (the bonding company). The surety guarantees that the contractor will perform according to the contract. If the contractor fails to do so, the surety steps in to resolve the issue, often by financing completion or compensating the owner for losses.
- There are several common types of construction surety bonds. Bid bonds guarantee that a contractor will honor their bid and provide required performance and payment bonds if awarded the contract. Performance bonds ensure that the project will be completed according to the contract terms. Payment bonds protect subcontractors and suppliers by guaranteeing they will be paid for labor and materials. In some cases, maintenance bonds are also required to cover defects discovered after project completion.
- Unlike insurance, surety bonds do not protect the contractor from loss. If a claim is paid, the contractor is legally obligated to reimburse the surety. For this reason, surety companies carefully evaluate a contractor’s financial strength, experience, credit history, and capacity before issuing a bond.
- Construction surety bonds are often legally required for public projects to protect taxpayer funds. Private project owners may also require them to reduce financial risk and ensure project completion. Bond amounts are usually tied to the contract value, commonly 100% of the project cost.
For contractors, being bondable can enhance credibility and open doors to larger and more competitive projects. For owners, surety bonds provide financial security, accountability, and peace of mind. Understanding how construction surety bonds work helps all parties manage risk and promote successful project outcomes. If you would like to discuss your specific situation or have questions, please don’t hesitate to call or email.