There are many different kinds of construction bonds, but the most common three used are Bid, Performance, and Payment Bonds.
- They can be required as part of your bid. The purpose of requiring these is to make sure the bidding field is not cluttered by contractors just throwing out numbers. Bond value is typically 20% of your total bid value.
- If you bid a project with a bid bond, and fail to start the job, the value of a bid and can be used towards hiring another contractor to perform the work.
- Performance bonds guarantee the work is completed that you have been contracted to perform. If a contractor fails to do so, then the bond can be used to pay another contractor or simply financially compensate the Obligee.
- Payment bonds guarantee that you will pay your subcontractors and material suppliers. Typically required in conjunction with Performance Bonds.