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Bid Bonds

Best for:

Construction Industry Projects
Bid-Based Projects

 

Provides financial protection to the owner if a bidder is awarded a contract but fails to sign the contract or provide the required performance and payment bonds.

Bid bonds are common in the construction industry and elsewhere when using a bid-based process of selection. As a contractor bidding for a certain job, you’ll submit proof of a bid bond along with your proposal, as proof of financial backing required to start and complete the task, helping project owners identify low-risk contractors. The bond will be for a percentage of the entire bid amount. 

This bond serves as indemnity bonds and provide protection to all parties who enter an agreement after bidding, but specifically the project owner—also called an obligee. The obligee will have cover if the contractor—called the principal—doesn’t keep to his or her part of the agreement. For example, if the bidder retracts the bid, doesn’t start or doesn’t complete the project, the obligee has a guarantee of being compensated. Compensation will be for the difference between the current bid and the next bidder’s amount that will now have to be budgeted for. 

A government may also require a bid bond to ensure this category of bonds (contract bonds) come about in good faith. 

Performance Bonds

Best for:

Construction Industry Projects
Federally Funded Projects

 

Provides an owner with a guarantee that, in the event of a contractor’s default, the surety will complete or cause to be completed the contract.

This is often a bond between a government entity and a contractor but it can also be used in private projects. It’s compulsory for federally funded contracts of $100 000 or more. It comes into play once a project owner accepts a certain contractor’s bid. Now the bid bond used for the bidding process is replaced by a performance bond. The bond serves as part of the guarantee that the entity awarded the bid will execute the project as stipulated in the bid according to contract guidelines.

With a performance bond in place there’s an assurance that a project, e.g. construction work happens according to the planned timeline. The work must also be on par with a specific standard. If not, a claim against this bond can lead to compensation for the project owner, providing the necessary funds for repairs or redoing the job. This minimizes losses and disruptions of projects.

Payment Bonds

Best for:

Construction Industry Projects
Public Projects
Subcontractors

 

Ensures that certain subcontractors and suppliers will be paid for labor and materials incorporated into a construction contract.

This bond is often issued along with a performance bond and is how you as a contractor provides a guarantee that any subcontractor or suppliers of material will receive compensation. In the event of the contractor not paying these third parties, they can collect payments from the surety who issued the bond. This gives a project owner peace of mind that the project can run smoothly, with no chance of liens, even if a contractor goes bankrupt. 

In the case of the Federal Government, this type of bond is compulsory if a contract is worth more than $35,000. The bond must also cover 100% of the value of the contract. On a state level, there are different requirements for these bonds in different states, taking into account many factors, such as the size of the contract.

Warranty Bonds

Best for:

Construction Industry Project

 

Guarantees the owner that any workmanship and material defects found in the original construction will be repaired during the warranty period.

License & Permit Bonds

Best for:

Auto Dealers
Travel Agencies
Credit Services
Insurance Brokers
Payday Lenders

 

Required by federal, state, or local governments as a condition for obtaining a license or permit for various occupations and professions. License and permit bonds include auto dealer bonds, mortgage broker bonds, contractor license bonds, and surplus lines broker bonds.

These bonds are either required by municipal governments, federal government or state government, depending on the situation. It’s relevant in all states and many businesses need a license and permit bond in order to receive their license to start operating in their chosen field. This bond protects both consumers and the government. It acts as a guarantee that you as a licensee will abide by legal guidelines, regulations set by municipalities, state laws and statutes relevant to that specific industry, usually to provide assurance that the public’s health and safety will be upheld. If not, there will be financial compensation.

For example, it protects against financial loss in the event an agency doesn’t pay over a client’s money to a third party or it can be a guarantee that should a business damage public property, it will be repaired. In the event of a licensee not upholding the terms of the agreement, a license may be cancelled and a claim can be made on the license bond.

Commercial Surety Bonds

Best for:

Businesses
Individuals

 

Commercial surety bonds cover a very broad range of surety bonds that guarantee performance by the principal of the obligation or undertaking described in the bond. They are required of individuals and businesses by the federal, state, and local governments; various statutes, regulations, ordinances; or by other entities.

Misc. Bonds

Best for:

Insurance Brokers

 

A miscellaneous bond is often also called a commercial bond. This is a non-contract bond and the term miscellaneous is used since it refers to bonds not relevant to most other categories of surety or fidelity type bonds. Examples include Fundraiser Bonds, Mortgage Broker Bonds and Roofer Bonds.

These are commercial surety bonds that do not fit into any of the types above. Included are a wide variety of bonds, such as warehouse bonds, title bonds, utility bonds, and fuel tax bonds. 

Companies purchase miscellaneous bonds when in need of surety bonds, but when it doesn’t relate to any legal guidelines, a construction project or a work contract. These bonds can also act as reinforcement of legislation, for example legal guidelines relating to permits and licenses. Qualification for these bonds are often easier to attain than many other bonds, because of the lower risk associated with them.

Subdivision Bonds

Best for:

Construction Industry Projects
Public Projects

 

A subdivision bond is a contract performance bond that can also be known as a developer bond, land improvement bond, site improvement bond, plat bond, completion bond, or performance bond. Subdivision bonds provide a guarantee that improvements will be made to land within a subdivision. Subdivision bonds are required by some local governments when contractors start work on a subdivision building project. They are a guarantee that the contractor will complete improvement works such as sidewalk maintenance, electrical upgrades, grading changes, etc. in the required time frame. In other words, subdivision bonds are a form of insurance that ensures the government agency will receive the necessary money to get the work done if the contractor fails to complete the project in a timely fashion.

Alternative names for this bond include developer bond, land improvement bond or completion bond. The bond is relevant to projects done for a government agency, to the benefit of the local community, such as building sewers, maintaining a sidewalk or houses being built by a developer. This bond will ensure that the developer is capable of completing this task, as well as keep to the proposed timeline. If the work is not completed as agreed upon, the government agency can make a claim for reimbursement from the surety who underwrites the bond, in order to pay another contractor to complete the project.

In contrast to other construction bonds, a subdivision bond only relates to the agreed upon improvements or construction, not payment and performance of all the developer’s contract work. The contract terms of a subdivision bond depend on various factors, including credit scores, experience and work history. A project outline often forms part of your bond application process.

Court Bonds

Best for:

Attorneys
Liquidators
Executors
Trustees

 

The term ‘court bonds’ is the general term referring to bonds like judicial and probate bonds. These are bonds you need in the case of actions taken via the courts such as being tasked with administering an estate. You need this to ensure you can fulfill a task or minimize financial loss related to the task which becomes your obligation as appointed by the court.

When the principal—a trustee or executor—does not fulfil his or her duty, the bond can cover any loss suffered by the estate.

Judicial Bonds

Best for:

Attorneys
Liquidators
Executors
Trustees

 

Required of a plaintiff or defendant in judicial proceedings to reserve the rights of the opposing litigant or other interested parties. Court bonds include appeal bonds, supersedeas bonds, attachment bonds, and injunction bonds.

Probate Bonds

Best for:

Attorneys
Liquidators
Executors
Trustees

 

Required of those who administer a trust under court supervision. Typical such bonds are executor and administrator bonds, trustee bonds, guardian bonds, and conservator bonds.

Public Official Bonds

Best for:

Attorneys
Liquidators
Executors
Trustees

 

Required by statute for certain holders of public office, to protect the public from malfeasance by an official or from an official’s failure to faithfully perform duties. Public official bonds included county clerk bonds, tax collector bonds, notary bonds, and treasurer bonds.

SDI

Best for:

General Contractors
Construction Management Firms
Construction Industry Projects

 

SDI is an insurance program specifically engineered to protect against the potentially adverse impact upon a construction project resulting from subcontractor’s default of performance. SDI promotes claims responsiveness and has helped general contractors keep projects moving on schedule and on budget even when a default occurs.

SDI has been a great “tool” or “sleep insurance” for GC’s that have gone bare or only selectively bonded for subcontractor default risk. In many cases and without additional workforce/workload it has enabled a GC to enhance risk mitigation strategy where it counts.

And what’s the difference between SDI and surety bonds you ask? SDI is an agreement between you and the insurance company, where subcontractor surety bonds are a three-way agreement between you, the surety bond company, and the subcontractor. Some key differences include:

  • With SDI, you decide if the subcontractor breached their contract. If so, you can make a claim straight away. With a subcontractor performance bond, you have to wait for the surety company to investigate the situation, and they decide if it counts as a breach of contract.

  • With SDI, you are responsible for finishing the project. The insurance company simply pays out the agreed amount of money. With a subcontractor performance bond, the surety company takes over responsibility for finishing the project.

  • SDI only protects contractors. Subcontractor payment bonds also protect the subcontractor, sub-subcontractors, suppliers, and laborers by promising to pay whatever they are owed.