Infographic: Types of Construction Bonds

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The Infographic, “Types of Construction Bonds,” explains the different types of bonds used in construction projects across the US. In addition to identifying the different types, the infographic explains their purpose and why they are useful in the construction industry.

Construction Bond is a commonly used name for a type of surety bond that protects the obligee (the project owner) by ensuring the principal (the contractor) fulfills the terms of the contract. If the principal does not fulfill their obligations, the surety company will compensate the obligee according to the terms of the surety bond.

This Infographic categorizes the different types of construction Bonds into 3 types. The first type is bid bonds, which protects the obligee if the principal fails to honor their bid. The second type is performance bonds, which protect the obligee related to the terms of the project. The third type is payment bonds, which guarantee all payments to sub-contractors involved in a project. To learn more about construction bonds, refer to the infographic below.

Are You Aware of Different bonds in Construction Contracts?

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A sound financing and reliable contractor is what the owners of the construction project need these days. Construction bonds or contract bonds are basically a type of surety bond, which is required to protect the owner of the project against monetary loss in case of non-performance or another party (contractor). These bonds are generally issued by an insurance company or a bank, also known as Surety Company, as a guarantee that the project will be completed by the specific contractor as per the plans and specifications of the construction project. In the event of default and termination of the contractor, the surety will ensure the project is completed.

The different kinds of bonds in construction contracts are:

Bid bond: It is a guarantee to the owner of the project that the job will be performed at the bid amount. In case the bid is not honored by the contractor, a claim can be raised against the bid bond.

Performance bond: It guarantees that the contractor will complete the contract as per its terms within the specified period of time. It the contractor fails to do so, the owner may call upon the surety to hand over the contract to a new contractor or to pay the costs to complete the contract.

Payment bond: It guarantees that all the payments that are due to the sub-contractors, suppliers and others will be paid on behalf of the contractor.

A better understanding of all these bonds is a must, especially if you are working in a construction industry.