UNDERSTANDING CONTRACT BONDS - PART 2
Contract Surety Bonds are designed to protect project owners against contractor default. Generally there are three different types of contract bonds which include: Bid Bonds Performance Bonds Payment Bonds
Bid Bonds Bid Bonds assure the project owner that the contractor will enter into the contract for the job at the price that was quoted at the time of the bid. Bid bonds prevent the contractor from raising the price once they are awarded a job. The bid bond also serves as an assurance to the project owner that the contractor has the ability to secure subsequent performance and payment bonds required to complete the project. Not all jobs are secured by bid bonds, however, bid bonds are often the first step for contractors trying to earn a job.
Performance Bonds Simply put, performance bonds guarantee that the contractor will perform the terms written in the contract. A performance bond ensures the project owner that they will receive payment of a sum of money in the case that the contractor fails to perform the terms of the contract. As with all surety bonds, a performance bond is not an insurance policy. If the surety has to pay out on the bond, the contractor then has to pay that sum of money back to the surety.
Payment Bonds Payment bonds guarantee that contractors will pay any subcontractors, laborers and/or suppliers for work performed under the contract. Payment bonds are often required in conjunction with performance bonds.
The use of bid bonds, performance bonds, and payment bonds help project owners to evaluate risk and have peace of mind that the contractor they hire will do the job according to the terms of the contract. At the same time, the contract bonding process empowers and encourages contractors to undertake construction work that they can deliver on.
If you are a contractor in Colorado and have questions about contract bonds, then contact Reeder Bonds for more information or for a quick and easy quote!