Contract bonds, which are most commonly seen in the construction industry hence the nickname construction bonds, are a type of surety bond that maintains contract requirements. They ensure that work is being done to the level described in a contract, which is why they are usually used in the construction industry. But there are a whole bunch of them, so it can get a bit confusing when trying to figure out which one you need. So, let us break them down together!
Bid Bond
A bid bond is used to protect a developer when they are receiving bids from contractors. It essentially guarantees that all bids are made by serious contractors only, protecting developers from contractors who place bids and remove them often.
Maintenance Bond
These bonds also serve as protection for project developers. It keeps whoever the developer is safe in case an inspection comes back on a project dubbing it as defective. The bond payout would be used to cover the cost of any repairs or other maintenance needed to solve the issues.
Payment Bond
A payment bond provides coverage in the event that a company goes bankrupt in the middle of a project. For example, if a construction company does not have to pay upfront and goes bankrupt while working on the project, then a payment bond comes in to cover the remaining costs of labor, supplies, etc.
Supply Bond
This bond type is one of the few designed to protect the contractor rather than the developer. It essentially guarantees that all supplies are ordered and then delivered according to the purchasing order. If supplies are provided incorrectly or not at all, a claim can be filed, and the bond can be paid out.
Contractor License Bond
A contractor license bond is used when someone is applying for a professional license, for example a contractor license. They ensure that the person applying follows the necessary laws and regulations associated with obtaining the specific permit.
Performance Bond
A performance bond is used in place to guarantee that the specifications agreed to in a contract are seen through to the end of the project. If adjustments were made that did not receive approval from all parties, the developer can issue a claim on this bond and receive a payout
