Why do Public Construction Projects need Bid, Performance and Payment Bonds?

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Public construction work in America is chiefly undertaken by private sector firms. The lowest responsive bidder acquires this work through the open competitive sealed bid system. This system works well with the help of surety bonds.

The Bid Bond is intended to keep careless bidders out of the bidding process by assuring a promising and concerned bidder will enter into the contract and provide the required performance and payment bonds. If the lowest bidder fails to maintain these commitments, the owner is protected, up to the amount of the bid bond, usually for the difference between the low bid and the next higher responsive bid.

The Performance Bond secures the contractor’s promise to perform the contract in accordance with its terms and conditions, at the agreed upon price, and within the time allowed.

The Payment Bond protects certain laborers, material suppliers and subcontractors against non-payment. The payment bond (or the construction bond) may be the only protection these claimants have if they are not paid for the goods and services they provide to the project.

Bonds: Many Benefits

  • Project owners trust those contractors more who have a performance bond.
  • Trust is built on both sides because performance bonds assure the contractor fulfills the conditions of the contract.
  • Payment bonds promise protection to laborers, material-suppliers and sub-contractors against non-payment.