Construction Bonds

Construction Bonds, also known as "contract bonds,” can be used for many reasons; however, they are most commonly used in the construction industry to ensure projects are completed according to contract – one of the reasons the two terms are used interchangeably. Construction bonds guarantee that contracts are fulfilled; in the instance that a contracted party fails to fulfill its duties according to the bond's terms, the project developer is entitled to make a claim on the bond to recover financial losses. Surety bonds are almost always required before work can begin on public projects — especially those that are federally funded — but private project developers can also require contractors to file certain types of surety insurance before starting any work.

These bonds cover a variety of construction types including:

Bid Bond

Bid bonds insure that contractors submit serious proposals for projects, and reassure project developers that bidders are financial able to accept the job. In the instance that a bid is selected and the contractor declines the job or retracts the bid, a claim can be made on the bond and the project developer will recoup the difference between that bid and the next-highest bid.

Performance Bond 

Performance bonds guarantee that projects are completed in accordance with contractual terms. Failure to do so can result in the project developer making a claim on the bond in order to access funds to pay a second contractor to complete the job. Under the federal Miller Act, all federally funded projects worth $100,000 or more require performance bonds.

Payment Bond

In the instance that contractors go bankrupt while working on projects, payment bonds guarantee proper payment for services rendered and can be used to reimburse suppliers, subcontractors, and others who worked on a project. Under the federal Miller Act all federally funded projects worth $100,000 or more require performance bonds. These bonds are issued more frequently in conjunction with performance bonds.

Supply Bond

Supply bonds mandate that suppliers provide materials, equipment and/or supplies as called for in purchase orders. Failure to provide the supplies as agreed results in the bond amount being used to reimburse the purchaser for the losses.        

Maintenance Bond

Maintenance bonds guarantee against defective materials and workmanship for an allocated time period after a project's completion. If the project is found to be defective during this time, the bond amount can be used to pay for repairs.

Subdivision Bond

Subdivision bondsrequire contractors to build and/or renovate public structures within subdivisions including: streets, sidewalks and waste management systems — in accordance with local specifications. Failure to do so can result in the bond amount being used to complete the subdivision project appropriately.

Site Improvement Bond

Site Improvement bonds guarantee the completion of improvements made to projects. These are generally used for renovation projects that update older structures and/or other existing properties.

Contractor License Bond

Contractor license bonds are often mistakenly grouped in with contract bonds for their similar use by construction professionals. These bonds must be purchased preempting the receipt of licenses at the state, county and/or city level. Contractor license bonds ensure all applicable licensing laws and regulations are followed.

Swingle, Collins & Associates specializes in construction bonds. The descriptions of coverages listed on this website are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle, Collins & Associates can assist in meeting your needs for construction bonds please contact your dedicated risk manager to discuss benefits and services. The information contained on this page is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request.