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3 Types of Construction Bonds


Construction bonds, also called contract and surety bonds, are frequently used within the construction industry. A construction bond establishes a legal relationship between the owner of the construction project knows as the “obligee,” the issuer of the bond known as the “surety,” and the contractor known as the “principal.”

Project owners or contractors should consult with seasoned Florida construction litigation attorneys before entering a bond since legal and financial liability is often involved if the terms of the bond are not met. The construction bond guarantees that the contractor will perform the specified “obligation.” Different types of construction bonds cover different obligations, below are three of the most frequently used ones.

1. Bid Bonds

In the construction industry, contractors bid for construction contracts. Project owners often require contractors to enter into a bid bond before accepting the bid and awarding the contract. Bid bonds protect the project owner by guaranteeing the contractor that won the bid will honor their original bid amount when entering the contract. If the contractor fails to do this, both the “principal” and surety may be liable for the costs of contacting a replacement contractor.

2. Performance Bonds

These type of construction bonds guarantee that the contractor will complete the project according to the terms of the construction contract. Performance bonds protect project owners from contractors’ low quality work or non-completion. If the “principal” does drop out of the project before completion, completes the project unsatisfactorily or past the deadline, the surety may be liable to either complete the contract, contract a replacement contractor, or compensate the “obligee” for finishing the project.

3. Payment Bonds

Payment bonds, along with performance bonds, are required under federal law. The Miller Act requires contractors to purchase these bonds before they can be awarded contracts over $100,000. Payment bonds guarantee all subcontractors and material suppliers hired to help on a project by the “principal” are properly paid for their contributions. So in the case of payment bonds, the “obligee” are the subcontractors and suppliers. If they fail to get their due payments, the surety is liable for reimbursing them. In most cases, the contractor will then be obligated to reimburse the surety.

At Kelley Kaplan & Eller, our experienced Florida construction litigation attorneys are experts on many aspects of the construction industry including bonding and construction bonds. Whether you are a contractor or project owner, consult with our dedicated team before entering into a bond. Call us today for a consultation.

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