Your Guide to Contract Bonds in Construction

SuretyBonds.com is licensed to issue construction bonds in every state. No matter where you work, we can bond you!

As the nation’s top surety provider, we offer the best service, fastest delivery and most affordable prices in the industry. Learn how surety bonds work in construction with this ultimate guide.

What Is a Contract Bond?

Contract bonds are a type of surety bond that guarantees contract fulfillment. They are most commonly used in the construction industry to ensure projects are completed according to set terms. The terms “contract bond” and “construction bond” are often used interchangeably. 

Types of Contract Bonds

The three primary bond types required for contractors are bid, performance and payment bonds. Certain jobs may require other construction bonds such as supply, maintenance, subdivision and site improvement bonds. 

Use the links below to find more information about each type of contract surety bond:

Contractor License Bond (CLB)

• Individuals must purchase these bonds before they can receive their contractor's license to ensure they comply with professional regulations in the construction industry.

Bid Bond

• Bid bonds assure project developers that contractors have the credentials to accept a job. If a contractor retracts their bid, the developer can collect the difference between the original bid and the next highest bid.

Payment Bond

• Payment bonds guarantee payment for services and supplies if lead contractors go bankrupt while working on projects.

Performance Bond

• Performance bonds guarantee that general contractors complete construction projects according to the agreed-upon terms.

Maintenance Bond

• Maintenance bonds protect against defective materials and workmanship after a project is complete. If the project is found to be defective, the bond amount can pay for necessary repairs.

Miller Act Bond

• Federal contract bonds, also known as Miller Act bonds, are payment and performance bonds specifically required for all federally-funded construction projects worth over $100,000.

Supply Bond

• Supply bonds mandate that suppliers provide materials, equipment and supplies as defined in purchase orders.

RUS Contractor Bond

• Rural utilities service contractor bonds are required to work on construction projects on RUS infrastructure that are worth $250,000 or more in all states.

Public ROW Bonds

Right of Way Bond

• Right of way and bonds guarantee proper and timely performance of work in a publicly owned right of way according to the ROW permit and local ordinances.

Encroachment Bond

• Encroachment bonds hold contractors responsible for damage done to public property and ensure they follow all regulations on the public right of way.

Development Bonds

Site Improvement Bond

• Site improvement bonds guarantee the completion of certain renovations or improvements made to projects, properties or structures.

Subdivision Bond

• Subdivision bonds require contractors to build or renovate public structures within subdivisions according to local specifications.

How Does a Construction Bond Work? 

A construction or contract surety bond is a three-party agreement between a contractor, the project owner and the surety provider. If the contracted party fails to fulfill its obligations, the project developer can file a claim on the bond to recover financial losses. 

How Much Does a Contract Bond Cost?

Contract bond premiums typically range between 1–3% of the total bond amount. These bonds require underwriting, so applicants may need to supply information verifying their ability to complete the contract, such as: 

• A credit check
• Personal financial statements
• Business financial statements 
• Scope of current projects 
• Insurance certificate
• Number of employees
• Bank reference letter 

To determine your exact construction bond price, request a free quote now.

How to Qualify for a Contract Bond

Common contract bonds, such as bid, payment and performance bonds, typically require a 700+ personal credit score for approval. This is to ensure a contractor has a strong financial history and the ability to repay any bond claims.

However, if you apply and get denied for a construction bond, you can request SBA backing. The SBA’s financial guarantee helps bolster your application so you can bid on larger projects. SuretyBonds.com is an approved partner of the SBA Surety Bond Program.

Understanding Different Construction Bond Types

What’s the Difference Between a Contract Bond and a Performance Bond? 

• A performance bond is a specific type of contract surety bond that guarantees a construction project will be completed according to terms. 

What’s the Difference Between a Contract Bond and a Payment Bond? 

• A contract bond ensures the terms of a construction project are met from start to finish. There are various types of contract bonds required throughout a project, including bid bonds, performance bonds and payment bonds. 
• Payment bonds specifically guarantee that the suppliers and subcontractors on the job will be fully compensated by the lead contractor.