Developer Bond

It's no secret that the construction industry relies heavily on surety bonds to increase consumer confidence during construction projects and to make sure that work is completed reasonably on time, on budget, and in accordance with the scope of an agreed upon contract. Construction bonds are required on all projects which are in excess of $100,000 and, needless to say, this lower limit necessitates that developers and construction companies preparing to build large subdivisions or planned communities invest in surety bonds- in this case, developer bonds.

Developer bonds are taken out by a developer or contractor and benefit the state or local municipality who requires the bond. A developers bond executed by a bond company is usually the preferred method of bonding for both contractors and state and local government since working with a bond company ensures that the bond will be proactively executed should there be a claim against it. However, these types of bonds can be executed using letters of credit, certificates of deposit, even cash.

The developer bond ensures the timely completion of public improvements like subdivisions, planned communities, and the infrastructure associated with them. (Infrastructure items can include projects like curbs and gutters, sidewalks, utilities, grading, storm drains, and streets.) The main function of the bond is to allow the builders and developers to record the subdivision plat and begin other administrative processes before the improvements are completed. Additionally, the developer bonds ensure that the work will be completed in accordance with the terms set forth in the contract agreed upon by both parties.

The developer bond indicates the cost of the improvements as well as the timeline for completion, which can help to ensure that all the parties involved in the construction has the same expectations for the work's scope. The bond also acts as another indication that the construction company or contractor involved in the project has the funds and financial strength to complete the project as the bond company issuing the bond will check not only financial statements but also the contractor's credit score.

If there ever is a valid claim against the bond, the bond company will step in to ensure that financial compensation up to the face value of the bond is issued or that the work is completed by another contractor. Because this can be a costly process for the construction company or developer, developer bonds help to dissuade contractors from committing fraud and help to assure that projects are finished quickly, efficiently, and on budget.